CCGG releases annual best practices for proxy circular disclosure

Kevin Smyth and Marshall Eidinger

Recently, the Canadian Coalition for Good Governance (CCGG) released its 2014 Best Practices for Proxy Circular Disclosure. The annual publication, which is intended to provide issuers with guidance on corporate governance and executive compensation disclosure, also includes a list of the CCGG's "Governance Gavel Awards" winners. In determining the winners, which this year includes Canadian Pacific Railway, Pembina Pipeline and Vermilion Energy, the CCGG considered the alignment between an issuer's governance practices and the recommended practices found in its publication Building High Performance Boards.

With respect to the review of disclosure practices, the publication sets out the CCGG’s expectations in respect of such issues as majority voting, director independence, board succession, director skills and education, risk management oversight, executive compensation and shareholder engagement, and provides a number of examples of actual disclosure the CCGG deems as “excellent”. Such disclosure included examples from Potash Corporation of Saskatchewan, ShawCor and Canadian Pacific Railway. 

The following is a summary of guidance provided by the CCGG.

Continue Reading...

OSC launches online compliance and regulation guide

On October 27, the Ontario Securities Commission launched a webpage to help registrants find OSC guidance in respect of compliance and regulation matters. Specifically, the webpage, which is organized by topic, provides links to existing OSC notices, reports and guidance. 

Federal Government introduces legislation to mandate disclosure of payments by extractive industry participants

Keith Chatwin and Ivan T. Grbešić  - 

The Government of Canada yesterday introduced legislation to implement the Extractive Sector Transparency Measures Act, following through on the announcement by Prime Minister Stephen Harper in June 2013 that Canada would be establishing new mandatory reporting standards for extractive companies directed at payments made to foreign and domestic governments at all levels, including Aboriginal groups. The Government of Canada has stated that the legislation is intended to be similar to that being implemented in the European Union, and is anticipated to be similar to that expected to be proposed by the United States Securities and Exchange Commission by March 2015.

It is also intended that the Canadian legislation be implemented in a manner that allows for reporting requirements that are uniform across these jurisdictions so as to reduce associated administrative costs for affected companies.

Given that the United States has thus far not introduced comparable legislation, it will be interesting to monitor whether the ultimate orientation and implementation of the Canadian legislation is modified to align with the initiative south of the border. While the SEC introduced a rule under Section 1504 of the Dodd-Frank Act in 2012 to require disclosure of payments by resource extraction issuers, the U.S. District Court for the District of Columbia, in American Petroleum Institute v. SEC, concluded, among other things, that the SEC misinterpreted Dodd-Frank by forcing public disclosure of detailed data on payments, and failed to consider associated competitive effects. Following the ruling the SEC has taken no further regulatory action, although the SEC has indicated that it would issue a new proposal under Section 1504 by March 2015.

Based on earlier indications from the Government of Canada, implementation on or before June 2015 is possible.

Continue Reading...

CSA members adopt disclosure requirements in respect of women on boards

Amanda Linett and Mike Devereux

Earlier this week, the CSA announced the upcoming implementation in Manitoba, New Brunswick, Newfoundland and Labrador, Northwest Territories, Nova Scotia, Nunavut, Ontario, Quebec and Saskatchewan of amendments to corporate disclosure obligations to require information in regards to the representation of women on boards of directors.

As we discussed last year, the OSC initiated a consultation process in July 2013 to consider the underrepresentation of women on corporate boards. In January 2014, meanwhile, the OSC published proposed amendments to Form 58-101F1 to require that reporting issuers annually disclose certain information in regards to the representation of women on boards and in respect of the director selection process. Other CSA jurisdictions published proposed amendments in July.

Having considered the responses submitted by stakeholders, the participating CSA jurisdictions have now released harmonized amendments in final form. Ultimately, the amendments published today, which are substantially similar to the earlier proposals, will require non-venture issuers to annually disclose:

  • director term limits and other mechanisms of board renewal;
  • policies regarding the representation of women on the board;
  • the board's or nominating committee's consideration of the representation of women in the director identification and selection process;
  • the issuer's consideration of the representation of women in executive officer positions when making executive officer appointments;
  • targets regarding the representation of women on the board and in executive officer positions; and
  • the number of women on the board and in executive officer positions.

The amendments apply to management information circulars and annual information forms that are filed following an issuer's financial year ending on or after December 31, 2014.

IIROC releases FAQ regarding Client Relationship Model

IIROC yesterday released a set of responses to frequently asked questions in regards to implementation of its Client Relationship Model.

As we've previously discussed, IIROC has adopted a number of rule amendments over the last few years in respect of certain CRM regulatory objectives, such as enhanced client reporting requirements, account suitability, and enhanced standards regarding conflicts of interest management and disclosure.

Ultimately, the FAQ provides guidance in respect of such issues as pre-trade disclosure of charges and the content required in account statements and trade confirmations.

For more information, see IIROC Notice 14-0233.

OSC sets out IFRS disclosure deficiencies for investment funds

Last week, the OSC's Investment Funds and Structured Products Branch released a notice setting out deficiencies identified by branch staff in their preliminary review of IFRS interim financial reports for the period ending June 30, 2014.

According to staff, recurring deficiencies in IFRS filings include (i) missing IFRS 1 reconciliations; (ii) missing opening IFRS statements of financial position; and (iii) missing management report of fund performance (MRFP) disclosure.

According to the branch, these deficiencies will be addressed in comment letters to investment fund managers. The notice also reminds investment fund issuers that non-compliance could result in the issuer being added to the default list.

Corporate disclosure on social media: don't get poked by regulators

Jonah Mann and Frank Selke -

Social media can provide reporting issuers with a fast and efficient means for communicating with shareholders and is an increasingly popular means of disseminating information. Such channels are, of course, subject to the same rules as other corporate disclosure, although applying those rules to social media requires some careful consideration given the limited “sound bite” nature of a post and potential for increased risk of selective disclosure.

While Canadian regulators have not expressly addressed potential issues relating to disclosure through social media, general principles governing disclosure are set out in National Policy 51-201 Disclosure Standards. For TSX-listed companies, meanwhile, the TSX has published its own Electronic Communications Disclosure Guidelines, which cover online communications, generally. Staff of the Canadian securities administrators have also provided guidance on the use of social media by portfolio managers, while National Policy 47-201 Trading Securities Using the Internet and Other Electronic Means provides guidance on using the Internet to communicate in connection with trades and distributions of securities.

Continue Reading...

OSC publish annual compliance report for dealers, advisers and IFMs

The Ontario Securities Commission yesterday published an annual report for dealers, advisers and investment fund managers that, among other things (i) sets out key policy initiatives impacting registrants; (ii) provides an overview of the OSC's registrant outreach program; (iii) discusses current trends in registration; and (iv) outlines the key findings and outcomes emerging from ongoing compliance reviews. The report also provides guidance to assist registrants in satisfying their obligations.

In respect of compliance reviews, the report found that 53% of registered firms reviewed in fiscal 2014 required enhanced compliance (as compared to 38% in 2013), while only 28% required "significantly enhanced" compliance (as opposed to 52% in 2013). Notably, 9% of reviewed registrants had their registration suspended.

General concerns identified by staff pursuant to compliance reviews included (i) non-compliance with know-your-client, know-your-product, suitability and accredited investor requirements; (ii) written policies and procedures not being tailored to a registrant's operations; and (iii) inadequate insurance coverage. The report also noted that some registrants are failing to provide notice of proposed ownership changes in, or asset acquisitions of, registered firms. Specific concerns in respect of dealers, advisers and investment fund managers, along with associated guidance to address these concerns, were also included in the report.

For more information, see OSC Staff Notice 33-745.

AMF issues its 2014 report for the Continuous Disclosure Review Program

The Autorité des marchés financiers (AMF) recently released an Activity Report setting out the results of its latest review of the compliance and general quality of continuous disclosure. The AMF’s report highlights the most common deficiencies found in continuous disclosure documents such as financial statements, management’s discussion and analysis (MD&As), annual information forms (AIFs), information circulars, technical reports, and press releases and material change reports.

The AMF’s review covered continuous disclosure filings made by reporting issuers for whom the AMF is the principal regulator during the April 1, 2013 to March 31, 2014 period. The review was undertaken within the scope of the Continuous Disclosure Review Program established by the Canadian Securities Administrators (CSA) and the report should be read in conjunction with the CSA Staff Notice 51-341, which presents the activities of the pan-Canadian review program.

The AMF’s review ultimately resulted in 81% of the companies reviewed being required to make improvements owing to the deficiencies identified, with only 12 of those being required to refile documents. None were subject to a cease trade order on the basis of the deficiencies (17 cease trade orders were issued, however, for failure to comply with filing deadlines).

Continue Reading...

OSC publishes The Investment Funds Practitioner for July 2014

Darin Renton -

The Investment Funds and Structured Products Branch of the Ontario Securities Commission recently released the July 2014 issue of The Investments Funds Practitioner, which provides an overview of recent issues arising from applications for discretionary relief, prospectuses and continuous disclosure documents filed by investment funds. Below is a summary of a few issues identified.

Structured Products

According to the Practitioner, Branch staff have noticed that some pricing supplements for linked notes whose reference asset is a fund or ETF do not disclose the fees associated with the ownership of the reference asset. As such, funds are reminded to disclose any fees charged by the reference asset that affect the return of the notes.

Meanwhile, the Practitioner states that Branch staff are increasingly scrutinizing linked notes that have autocall features. Staff are specifically concerned that autocall notes could be mistaken for, and sold as, alternatives to fixed income or money market securities. Staff are thus now asking that the front page of autocall note prospectus supplements include a textbox disclosing the existence of downside risk and that such notes are not designed to be alternatives to fixed income or money market instruments.

Continue Reading...

CSA publish 2013-2014 continuous disclosure review

The Canadian Securities Administrators today published a notice summarizing the results of their continuous disclosure review program for fiscal 2014.

The continuous disclosure review program consisted of 221 full and 770 issue-oriented reviews of reporting issuers. Ultimately, 37% of the reviews resulted in issuers being required to make prospective changes by way of enhancements in future filings, 14% of the reviews resulted in issuers being required to amend or re-file certain disclosure documents, 16% of the reviews resulted in issuers being alerted to areas where disclosure enhancements should be considered, and 9% of issuers were either cease-traded, placed on a default list or referred to enforcement. Only 24% (as compared to 53% in 2013) of the reviews resulted in no changes or additional filings being required. In total, 76% of the review outcomes required issuers to take action to improve their disclosure or resulted in the issuer being referred to enforcement, cease traded or placed on the default list, compared to 46% in 2013.

The CSA report also provides a number of examples of deficient disclosure as well as  corresponding examples of more fulsome disclosure. Common financial statement deficiencies included those in respect of (i) interests in other entities; (ii) revenue recognition; and (iii) impairment of assets. Disclosure deficiencies in MD&A were noted with respect to (i) non-GAAP measures; (ii) forward looking information; and (iii) additional disclosure for venture issuers without significant revenue. Meanwhile, other disclosure deficiencies were identified in respect of mineral projects, executive compensation and filing of news releases and material change reports.

For more information, see CSA Staff Notice 51-341. While all jurisdictions participate in the review program, some local jurisdictions may also publish reports summarizing results in their jurisdiction which may be found on the individual regulator’s website.

AMF proposes amendments to derivatives trade reporting regulation

Alix d'Anglejan-Chatillon -

On July 3, Quebec’s Autorité des marchés financiers (AMF) published for comment the Draft Regulation to amend Regulation 91-507 respecting Trade Repositories and Derivatives Data Reporting (the “Draft Regulation”). Regulation 91-507, which requires that all over-the-counter (OTC) derivatives transactions involving a local counterparty be reported to a recognized trade repository, came into force in Quebec on December 31, 2013, with reporting obligations becoming effective for the various market participants over the course of 2014 and 2015. The AMF is proposing the Draft Regulation in furtherance of its previously stated intent to make consequential amendments to Regulation 91-507 “to maintain a harmonized national oversight and reporting regime for OTC derivatives markets”.

As part of the changes proposed in the Draft Regulation, section 25 of Regulation 91-507, which imposes the reporting requirement on the dealer, would be amended to explicitly add Canadian financial institutions to the determination of the reporting counterparty. The reason for the addition is that Canadian financial institutions engaging in derivatives trading on their own behalf might not need to be registered as derivatives dealers under the Quebec Derivatives Act. For purposes of transaction reporting under Regulation 91-507, a Canadian financial institution would be the most technologically sophisticated counterparty.

Continue Reading...

IIROC proposal would allow firms to provide unaudited summary statements of financial position

Late last month, IIROC proposed amendments to its Dealer Member Rules intended to allow dealers to satisfy a client's request for a copy of the dealer's summary statement of financial position without having to obtain an auditor's report for that statement.

IIROC is accepting comments on its proposed amendments until September 24. For more information, see IIROC Rules Notice 14-0157.

CSA members propose requiring disclosure of board gender diversity

Certain members of the CSA, namely Saskatchewan, Manitoba, Quebec, New Brunswick, Nova Scotia, Newfoundland and Labrador, Northwest Territories and Nunavut, today published for comment proposed amendments to corporate governance disclosure obligations that would require non-venture issuers to provide disclosure in respect of gender diversity on issuers' boards and senior management teams. As we've previously discussed, the OSC published similar proposed amendments earlier this year.

The participating CSA members are accepting comments on the proposal for 60 days.

Government advisory council recommends 30% target for women on boards

Amanda Linett and Mike Devereux -

Last week, the Canadian government's advisory council studying ways to increase gender diversity on corporate boards issued a report recommending that women make up 30% of corporate boards nationally within five years. The report also recommends, among other things, that a "comply or explain" approach be implemented to incentivize public companies to meet that goal.

As we've previously discussed, the Ontario Securities Commission proposed amendments to corporate governance disclosure obligations earlier this year that would require TSX-listed and other non-venture issuers reporting in Ontario to annually disclose, among other things: (i) the board's or nominating committee's consideration of the representation of women in the director identification and selection process; (ii) targets regarding the representation of women on the board and in executive officer positions; and (iii) the number of women on the board and in executive officer positions.

The OSC's Statement of Priorities for the upcoming fiscal year suggests that final rules are forthcoming.

OSC releases Statement of Priorities for 2014-2015

The Ontario Securities Commission today released its Statement of Priorities for the 2014-2015 financial year. The OSC notice also addresses stakeholder comments received in response to a draft version released earlier this year.

Ultimately, the OSC provides five broad regulatory goals for the upcoming year, namely (i) delivering strong investor protection, including by considering the best interest duty to investors, completing research in regards to embedded fees in mutual funds and publishing final rules to introduce pre-sale delivery of Fund Facts for mutual funds; (ii) delivering responsive regulation by, among other things, publishing proposals to update the order protection rule, developing proposals for streamlining the existing rights offering exemption, and moving forward on proposed rules regarding board gender diversity; (iii) delivering effective enforcement and compliance; (iv) supporting and promoting financial stability, including by developing rules for the clearing of OTC derivatives and implementing trade reporting rules, as well as by working with B.C., Ontario and the federal government to implement a cooperative securities regulator to deliver "more efficient and effective regulation of the capital markets" and oversee sources of systemic risk; and (v) running a modern, accountable and efficient organization.

For more information, see OSC Notice 11-770.

Investment fund modernization: Phase 2 implementation to start in September of 2014

The Canadian Securities Administrators today announced the adoption of final amendments that will implement certain aspects of Phase 2 of the Modernization of Investment Fund Product Regulation Project.  The mandate of Phase 2 involved generally addressing the regulatory gap between non-redeemable investment funds and mutual funds by focusing on imposing certain core operational requirements on publicly offered non-redeemable investment funds that are generally analogous to the requirements applicable to mutual funds.

The final amendments to be adopted as of September 22, 2014 stem from proposed amendments published last year, and will involve the imposition of core investment restrictions for non-redeemable investment funds while also enhancing disclosure requirements regarding securities lending activities by investment funds. The following is a summary of some of the final amendments that are set to come into force, which we will review in further detail in subsequent posts.  

Notably, the final amendments do not extend to the creation of a more comprehensive alternative funds framework (planned to be effected through an overhaul of National Instrument 81-104 Commodity Pools).  As previously announced by the CSA,  the “alternative funds proposals” have been deferred to allow for further review, along with related restrictions that were proposed with respect to investments in physical commodities, short selling, the use of derivatives and borrowing cash.

Continue Reading...

CSA revive proposals for venture issuer disclosure

Tim McCormick -

The Canadian Securities Administrators yesterday published proposed amendments to disclosure rules intended to tailor and streamline the disclosure required of venture issuers. According to the CSA, the proposed amendments are designed to focus venture issuers' disclosure on information that reflects the expectations of venture issuer investors, while eliminating disclosure of less value.

To that end the proposal would, among other things (i) allow the MD&A requirement for interim financial periods to be satisfied through the filing of a streamlined "quarterly highlights" report where a venture issuer lacks significant revenue; (ii) implement a tailored form of executive compensation disclosure for venture issuers that would reduce the number of individuals for whom disclosure would be required to a maximum of three and reduce the number of years of disclosure to two; (iii) decrease the circumstances under which a venture issuer would have to file a business acquisition report by increasing the asset and investment test thresholds under which an acquisition would be considered "significant" from 40% to 100%; and (iv) reduce to two years the number of years of audited financial statements required in an initial public offering prospectus for an issuer seeking to become a venture issuer. With respect to certain of the proposals, issuers would be able to choose to comply with the existing requirements applicable to all reporting issuers or to comply with the new venture-specific requirements.

As we've previously discussed, the CSA's earlier proposal to create a comprehensive regulatory regime for venture issuers, which would have consisted of a stand-alone rule and included corporate governance requirements, was shelved in 2013. While the CSA have retained some of the disclosure-related elements of the previous proposals, the amendments proposed today are intended to make targeted changes to existing rules.

The CSA are accepting comments on the proposal until August 20, 2014.

OSC staff provide recommendations on fund disclosure regarding fees and expenses

The Ontario Securities Commission released a staff notice yesterday outlining the Investment Funds Branch's recommendations based on its observations in regards to the disclosure of fees and expenses by investment funds.

The Branch conducted targeted continuous reviews of the fee and expense disclosure practices of a sample of fund managers as part of a broader review of fee disclosure beginning in August 2013. Prospectus and continuous disclosure records were reviewed to determine whether disclosure (i) provided sufficient information to investors on how fees and expenses were being charged and (ii) accurately and fully described fund managers' allocation of expenses to the funds they manage.

Ultimately, the Branch made a number of recommendations to address identified concerns, including that: (i) prospectus and continuous disclosure documents disclose the specific services that a fund manager provides to the fund in consideration of the management fees and the types of expenses charged to the fund as operating expenses, and "catch all" terminology be avoided; (ii) fund managers consider enhancing the transparency of their expense allocation as a way to mitigate the actual and perceived conflicts of interest inherent in such practices; (iii) fund managers ensure that related party disclosure requirements are complied with; (iv) general expenses allocated to the funds have a direct relationship to the daily operation of the funds and be fair and reasonable to the funds; (v) policies and procedures exist to deal with the allocation of expenses between the fund manager and its funds; and (vi) expenses allocated to the funds be limited to certain enumerated costs.

For more information, see OSC Staff Notice 81-724.

CSA publish guidance on implementing OBSI dispute resolution mechanism

The Canadian Securities Administrators today released guidance to assist registered dealers and advisers outside Quebec, which are now required to make the services of the Ombudsman for Banking Services and Investments (OBSI) available to clients. As we discussed last year, amendments to National Instrument 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations and its companion policy (collectively, the Amendments) now require that registered firms offer OBSI's services in order to satisfy their obligations to make independent dispute resolution or mediation services available to clients. Registered firms who are members of self-regulatory organizations will continue to be subject to their SRO's rules concerning complaint resolution.

Specifically, the guidance sets out the CSA's expectations in respect of preparing and delivering clear and meaningful client disclosure. Specific issues considered include when client disclosure is to be provided, when independent dispute resolution or mediation services need to be offered, and when relationship disclosure has to be updated. Sample client disclosure was also provided. Subject to necessary approvals in each participating jurisdiction, the Amendments come into force May 1, 2014 and provide for a transition period that will end on August 1, 2014. For more information, see CSA Notice 31-338.

Investment Funds Practitioner published for March 2014

Darin Renton -

The Investment Funds Branch of the Ontario Securities Commission recently released the March 2014 issue of the Investments Fund Practitioner, which provides an overview of recent issues arising from prospectuses, continuous disclosure documents and applications for discretionary relief filed by investment funds. A few highlights are discussed below.

Continuous Disclosure

According to the Practitioner, the Branch recently received an inquiry in regards to the disclosure of cash and money market funds in the management report of fund performance (MRFP), Fund Facts and quarterly portfolio disclosure. On this point, the Practitioner states that Branch staff expect cash and cash equivalents to be disclosed on a line separate from an investment in a money market fund in the summary of investment portfolio (the list of top 25 positions) in the MRFP. In the portfolio breakdown, however, money market funds holdings may be grouped with cash and cash equivalents as the summary nature of the portfolio breakdown provides for flexibility. Meanwhile, the top 10 investments in the Fund Facts should separate cash and cash equivalents from money market funds and the top 25 holdings in the quarterly portfolio disclosure should be exactly the same as the fund’s MRFP disclosure.

Continue Reading...

ISDA hosting derivatives reporting webinar

Margaret Grottenthaler -

As we've recently discussed on our structured finance blog, the OSC, MSC and AMF recently adopted derivatives rules in respect of product determination, trade repositories and derivatives data reporting. 

Under the new rules, any entity engaging in over-the-counter derivatives transactions must obtain a legal entity identifier and may have to make certain status representations to its counterparties to facilitate trade reporting. Reporting requirements begin July 2. 

Join me as I participate in ISDA's webinar on preparing for the new reporting requirements on April 3 to learn more.

CSA propose Fund Facts pre-sale delivery requirements

The Canadian Securities Administrators today published proposed amendments to mutual fund prospectus disclosure rules that would implement requirements regarding the pre-sale delivery of Fund Facts. The amendments represent the third stage of the CSA's point of sale disclosure project for mutual funds.

Under the proposed amendments, the most recently filed Fund Facts would have to be delivered to a purchaser before a dealer accepts an instruction for purchase. Delivery would not be required, however, if the purchaser had already received the most recently filed Fund Facts. There would also be an exception, subject to certain conditions, where a purchaser indicated a desire to complete the purchase immediately or by a specified time, and it was not practicable for the dealer to complete pre-sale delivery. In such a case, the Fund Facts would have to be delivered within two days of purchase.

Pre-sale delivery requirements would also not apply to subsequent purchases of securities of a mutual fund pursuant to pre-authorized purchase plans so long as the dealer provided initial and subsequent annual notices to the purchaser that included information on how to access and request the Fund Facts and that the purchaser would not have a right for withdrawal of the purchase.

Continue Reading...

SEC reaches settlement with Lions Gate relating to disclosure violations

Simon Romano and Colin Burn

On March 13, 2014, the U.S. Securities and Exchange Commission announced that it had reached a settlement agreement with Lions Gate Entertainment Corp. that will see Lions Gate admit wrongdoing in connection with the issuance of misleading disclosure in 2010, as well as pay a $7.5 million fine. The disclosure at issue was made in connection with Lions Gate’s defense against activist investor Carl Icahn’s 2010 hostile efforts to gain control of the company via a series of takeover bids and a proxy contest.

Background

According to the SEC’s order instituting settled administrative proceedings, Lions Gate admitted to omitting material information in its public disclosure relating to an extraordinary set of transactions that resulted in Lions Gate issuing approximately 16 million Lions Gate shares to a management-friendly director. Lions Gate admitted that the transactions were designed and carried out by management to dilute entities controlled by Carl Icahn (Icahn Group), who had previously launched a campaign to gain control of Lions Gate via a series of tender offers and was expected to launch a proxy contest. The transactions diluted the Icahn Group’s interest in outstanding Lions Gate shares from 37.9% to 33.5% and increased the management-friendly director’s interest from 19.9% to 28.9%. Additionally, at the Lions Gate shareholders meeting, shareholders elected management’s slate of directors and rejected the Icahn Group’s slate. The margin of defeat for one of the five Icahn Group nominees was approximately 16 million Lions Gate shares.

Continue Reading...

CSA provide guidance in respect of new client reporting requirements

The CSA yesterday published a list of frequently asked questions, related responses and additional guidance to assist registrants in satisfying requirements in regards to cost disclosure, performance reporting and client statements that came into force on July 15, 2013.

Specifically, the notice provides guidance in respect of a number of issues, including relationship disclosure information, pre-trade disclosure of charges, content and delivery of trade confirmations, account statements, and the content of investment performance reports.

For more information, see CSA Staff Notice 31-337.

OSC publish review of activities and initiatives related to funds in 2013

The Ontario Securities Commission today published a staff notice summarizing key initiatives and activities impacting investment fund issuers and the fund industry.

Specifically, the notice reviews the status of a number of policy initiatives, including with respect to, among other things, the transition to IFRS, mutual fund fees, point of sale and risk classification methodology for Fund Facts, and the modernization of investment fund product regulation.

The OSC also identifies a number of emerging trends over the past year, including an increase in the number of prospectus offerings that proposed to invest substantially all their assets in a pool of mortgages as well as an increase in the use of derivatives to offer more efficient investment exposure to areas that are more difficult to reach through direct investments.

The staff notice also includes a discussion of findings emerging from OSC staff's review of prospectus and continuous disclosure, including in respect of risk ratings in Fund Facts and sales communications and advertising. With respect to the latter issue, OSC staff found that while funds were generally compliant with disclosure requirements related to sales communication, some communication did not contain all the information required.

For more information, see OSC Staff Notice 81-723.

OSC provides guidance to assist mining issuers in preparing MD&A

Ivan T. Grbešić -

The OSC yesterday published guidance intended to assist small mining issuers in complying with MD&A requirements. Specifically, the notice includes a review of MD&A by mining issuers with a market capitalization of less than $100 million and guidance in respect of MD&A disclosure.

In reviewing MD&A disclosure, the OSC ultimately found that many smaller mining issuers continue to struggle to provide complete and meaningful MD&A disclosure. The OSC specifically identified a number of areas needing improvement, namely in respect of (i) venture issuers without significant revenue from operations not providing a breakdown of material components of exploration and evaluation assets or expenditures; (ii) issuers with exploration projects not discussing and itemizing exploration expenditures; (iii) issuers with a working capital deficiency providing only general discussion of potential sources of financing and how they planned on continuing operations; (iv) issuers not appropriately disclosing the identity of the party involved in a related party transaction; (v) issuers providing either no discussion or a generic, unquantified discussion of liquidity risks. The report consequently provides guidance to address the above concerns, including examples of boilerplate disclosure contrasted with examples of more acceptable disclosure.

Continue Reading...

Time is of the essence in public disclosures by dual-listed AIM companies

Jeffrey Keey and Kate DaSilva -

A recent reprimand by the London Stock Exchange of an AIM/TSX dual-listed company for not releasing an announcement in the UK at the same time as the announcement was released in Canada highlights the importance of ensuring that dual-listed AIM companies comply with the AIM Rules for Companies at all times (the AIM Rules).

Pursuant to Rule 10 of the AIM Rules, “information which is required to be notified by the AIM Rules must be notified by the AIM company no later than it is published elsewhere”. In practice, this means that an announcement by a dual-listed AIM company cannot be released to a foreign market at a time the AIM market is closed. This includes situations where information is made public in Canada solely through publication on SEDAR. 

Thus, if such information is required to be disclosed pursuant to the AIM Rules, any filing on SEDAR must be announced in the UK at the same time. It is important to note that this rule, as reinforced by the recent warning issued by the AIM team, precludes the company from making an announcement when one market is open and the other is closed, regardless of whether the same announcement is made immediately upon the other market opening the following business day.

Ultimately, this rule is designed to prevent investors in one jurisdiction from gaining a competitive edge over others by virtue of that market having access to information at a time when the same is not available through approved channels to all markets. Practically speaking, companies should be mindful to keep their advisors in each of the jurisdictions where it is listed up to date and abreast of announcements or matters which the board anticipate being the subject of an announcement, particularly their AIM nominated advisor.

Five developments to follow in 2014 - Pay-ratio disclosure

Stéphane Rousseau and Benoît C. Dubord -

In accordance with the U.S. Dodd-Frank Act, the Securities and Exchange Commission introduced proposed rules in September 2013 to provide for new “pay ratio disclosure” obligations. According to the proposal, every public company would be required to disclose the ratio of the compensation of its principal executive officer (PEO) to the median compensation of its employees in any filings that mandate executive compensation disclosure, such as annual reports, registration statements, and proxy and information statements. Companies would be able to disclose the information either as a ratio or expressed narratively by referring to the multiple that the PEO total compensation amount bears to the median of the annual total compensation amount.

Continue Reading...

IIROC updates proposed rule regarding oversight of debt securities trading

Last week, IIROC republished a proposed rule that would require reporting of debt transactions. As we discussed last year, IIROC initially released a draft rule in February 2013 to require each IIROC dealer member to report on a post-trade basis all debt market transactions executed by the dealer member, including those executed on an Alternative Trading System (ATS) or through an Inter-Dealer Bond Broker (IDBB). The more recent version of the draft rule, whose purpose is to facilitate the creation of a database of transaction information that would enable IIROC to carry out its responsibilities with respect to surveillance and oversight of OTC debt market trading, includes a number of revisions in response to stakeholder comments.

Changes made to the latest revision include setting out the data elements that must be reported for transactions and extending the deadline to report transactions to IIROC from T+1 at 2:00 a.m. to T+1 at 2:00 p.m. 

Comments on the proposed rule are being accepted until March 10, 2014. For more information, see IIROC Notice 14-0004.

Continuous Disclosure Guide

Over the last few years, regulators have issued a number of notices providing guidance and suggested best practices relevant to continuous disclosure, most notably relating to amendments to executive compensation disclosure.

Meanwhile, in advance of proxy season, groups such as the Canadian Coalition for Good Governance and ISS also typically release model policies and guidance on such topics as proxy circular disclosure and majority voting. We have created this Canadian Public Company Disclosure Reference Guide to assist you in preparing your annual disclosure, including financial statements, MD&A, AIFs and information circulars. This guide sets out the main sources of the disclosure requirements along with relevant guidance, best practices and policies, as applicable.

Continue Reading...

A look back at 2013

From the implementation of prospectus pre-marketing rules to a new "notice-and-access" framework for proxy materials, the past year has been a busy one for capital market regulators. And, 2014 is shaping up to be a busy one as well, with indications from regulators that we could soon see the release of proposals related to crowdfunding, proxy voting and gender diversity. Further, the federal government, along with Ontario and B.C. continue to work towards the creation of a cooperative securities regulator.

In case you missed them the first time around, we've compiled some of our most popular and substantive posts from the last 12 months, below.

M&A

Continue Reading...

IFRS for investment funds received Ministerial approval

Regulatory changes requiring investment funds to transition to IFRS for financial years beginning on or after January 1, 2014 have now received Ministerial approval in Ontario and Quebec.

Industry Canada launches CBCA consultation

Industry Canada recently announced the launch of a public consultation process to consider potential amendments to the Canada Business Corporations Act (CBCA). The CBCA governs federally incorporated companies, and according to Industry Canada, is the governing corporate law for almost half of Canada’s largest public companies.   While many of its counterpart provincial corporate laws have recently undergone a modernization process, comprehensive amendments to the CBCA were last made in 2001 and certain changes have been long-awaited.

This consultation process follows a statutory review conducted by a House of Commons Standing Committee in 2009-2010. Citing the need to maintain a modern corporate regulatory structure reflective of marketplace changes and developments, the consultation papers asks for input on a wide range of issues, including those that could result in significant changes to shareholder rights and board accountability (such as proxy access and shareholder approval of dilutive transactions), as well as those that represent and reflect some of the latest developments in corporate governance (such as corporate social responsibility and board diversity). While having a direct impact on federally-incorporated companies if adopted, certain changes would also have the potential to set a trend for corporations in Canada generally.

Continue Reading...

Disclosure of non-GAAP financial measures "disappointing": OSC

Last week, the Ontario Securities Commission issued a report setting out the findings of its review of the non-GAAP financial measures and additional GAAP measures commonly disclosed by issuers in public documents. The report, which found that issuers in almost all industries use some type of non-GAAP or additional GAAP financial measure considered common to their particular industry, also found that there is often no standard method in calculating the industry measure. Commonly used non-GAAP financial measures include EBITDA, adjusted earnings and net debt; commonly used additional GAAP measures include operating income and cash flow from operating activities before changes in non-cash working capital.

In preparing the report, the OSC reviewed the disclosure of 50 Ontario-based reporting issuers and focused on where non-GAAP financial measures or additional GAAP measures were reported and how they were calculated, presented and disclosed.

Continue Reading...

Investment Funds Practitioner published for November 2013

Last week, the Investment Funds Branch of the Ontario Securities Commission released the November 2013 issue of the Investments Fund Practitioner. The publication provides an overview of recent issues identified by the Branch arising from prospectus filings, exemptive relief applications and continuous disclosure documents filed by investment funds.

Prospectuses

Of particular interest, the Practitioner states that Branch staff are currently focusing on three priority areas in their prospectus reviews, namely fees and expenses (including whether explanations are in clear and plain language), investment objectives and strategies (including the provision of meaningful information for investors), and conflicts of interest. According to the Practitioner, staff's intention is to encourage more consistent disclosure and promote clear, accurate and understandable disclosure, rather than boilerplate language.

Continue Reading...

OSC to require mandatory electronic filing of documents

The  Ontario Securities Commission today announced the adoption of a rule that will make electronic filing mandatory for certain documents currently filed with the OSC in paper format. The rule, however, does not apply to documents already filed through SEDAR, SEDI or NRD.

While initially many of the documents will continue to be filed in an unstructured format such as PDF, the OSC intends to eventually migrate to web-based forms and structured data.

As we discussed in an earlier post, the OSC initially released a proposed version of the rule in April 2013, and the final version takes into account stakeholder comments.

Assuming Ministerial approval, the rule will come into effect on February 19, 2014. For more information, see OSC Rule 11-501.

CSA proposes enhancements to oil and gas disclosure

The Canadian Securities Administrators yesterday proposed amendments to NI 51-101 Standards of Disclosure for Oil and Gas Activities intended to enhance the consistency and quality of issuers' disclosure of oil and gas activities, while increasing flexibility for issuers.

Among other things, the proposals would permit disclosure prepared under an alternative resources evaluation standard, such as the SEC's reserves disclosure regime, in certain circumstances, provide clearer boundaries for the disclosure of contingent and prospective resources and introduce a principle-based approach to the disclosure of oil and gas metrics. The amendments would also clarify the concept of marketability in the reporting of oil and gas volumes.

The CSA, which also asked stakeholders to consider specific questions on the proposals, is accepting comments until January 17, 2014.

Consolidation of SEDAR and NRD fees occurs October 12

The Canadian Securities Administrators today provided an update on the implementation of MI 13-102, which consolidates system fees payable to regulatory authorities, as well as the upcoming transition of SEDAR, SEDI and NRD from CDS to CGI Information and Management Consultants.  

While the consolidation of system fees will still be implemented on October 12, 2013 as planned, the transfer of responsibility for the CSA national systems has been delayed until December 2, 2013. As Ontario is not delaying the effective date of the actual regulations, the OSC is requesting that market participants continue to treat CDS Inc. as the SEDAR filing service contractor, SEDI operator and NRD administrator until December 2, 2013.

For more information, see CSA Staff Notice 13-320.

CSA adopt transition date for investment funds to move to IFRS

The Canadian Securities Administrators announced yesterday that they have finalized changes that will transition financial reporting for investment funds to IFRS.

While reporting issuers and registrants generally were required to transition as of January 1, 2011, the transition date for investment funds was deferred in order to allow for the International Accounting Standards Board’s (IASB’s) exception from consolidation for investment companies to be in place prior to the transition.  Without this exception, investment funds would have been required to consolidate investments that they controlled, resulting on potentially confusing disclosure given that their portfolios were historically shown at fair value. This issue was resolved under the IASB's Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27) issued on October 31, 2012, which provides the required exception. According to the CSA, the definition of “investment entity” in IFRS 10 should capture, and therefore resolve the issue for, most investment funds. They do acknowledge, however, that it is possible that it may not capture all of them.

Investment funds will therefore be required to transition to IFRS for financial years beginning on or after January 1, 2014. Amendments have also been made to cover terminology differences between Canadian GAAP and IFRS and to reflect changes to financial statement presentation and will affect NI 81-106, NI 81-101, NI 81-102, NI 81-104 and the investment fund form of prospectus under Form 41-101F2.

The amendments include non-material changes made to the CSA's initial proposal published in October 2009 to reflect comments received from stakeholders. Assuming Ministerial approvals, the amendments come into force on January 1, 2014.

Relief from relationship disclosure information requirements extended for IIROC members

The CSA announced yesterday that relief exempting IIROC members from the requirement to provide relationship disclosure information, as prescribed under s. 14.2(1) of NI 31-103,  would be extended to March 26, 2014.

CSA members initially provided an exemption from the requirements of s. 14.2(1), set to expire on December 31, 2013, to the benefit of IIROC members that complied with IIROC's rules once in force. As we discussed last year, IIROC adopted specific requirements for relationship disclosure as part of its Client Relationship Model Project, with implementation planned for March 26, 2013 for new clients and March 26, 2014 for existing clients. As IIROC's rules will not come into effect until next year in respect of existing clients, the CSA relief will extend its exemption in respect of existing clients to March 26, 2014 in order to harmonize with IIROC's implementation schedule.

The relief orders, being issued by CSA jurisdictions, will come into effect on December 31, 2013. For more information, see CSA Staff Notice 31-335.

CSA issue cyber security recommendations

The Canadian Securities Administrators yesterday issued a staff notice recommending that issuers, registrants and regulated entities consider the risks of cyber crime and take steps to address cyber security risks. Suggested actions include educating staff of the importance of securing client information, following industry guidance and best practices in regards to security measures and conducting regular third party vulnerability and security tests.

While protecting against cyber crime is relevant for issuers, registrants and regulated entities (such as SROs, marketplaces, clearing agencies and information processors), CSA staff provide their view on specific considerations for each of these categories of market participants. According to the notice, issuers should consider whether such risks, related controls and any cyber crime incidents they may experience are matters that need to be disclosed in a prospectus or continuous disclosure filing. Registrants meanwhile are advised to consider whether their risk management systems allow them to manage such risks in accordance with prudent business practices, while regulated entities are advised to consider what measures are necessary to manage cybercrime risk.

For more information, see CSA Staff Notice 11-326.

OSC extends consultation period regarding women on boards

The OSC is extending the consultation period in relation to their proposals respecting disclosure regarding the representation of women on boards and in senior management to October 4, 2013. The OSC will also be hosting a roundtable on October 16 to discuss the issues addressed in their previously-published consultation paper. For more information, see OSC Staff Notice 58-701.

OSC releases report on asset impairment and segment reporting disclosure

On September 20, the OSC's Office of the Chief Accountant published a bulletin setting out its observations in regards to issuers' asset impairment and segment reporting in light of IAS 36 Impairment of Assets and IFRS 8 Operating Segments.

Areas of improvement identified with respect to asset impairment disclosure included issuers' description of cash generating units, explanations of the events and circumstances that contributed to the impairment loss and explanations of the basis of key assumptions and the valuation approach used to determine the recoverable amount.

In respect of segment reporting, the notice stated that issuers should pay particular attention to identification of the Chief Operating Decision Maker, identification of operating segments, aggregation of operating segments to form reportable segments, change in reportable segments and entity-wide disclosures.

For more information, see OSC Staff Notice 52-721.

BCSC panel finds "spectacular" drill results not a material change

On August 7, a three-member panel of the British Columbia Securities Commission unanimously dismissed allegations that Canaco Resources Inc. and four of its directors contravened the B.C. Securities Act by failing to immediately disclose positive drill results emanating from the company’s marquee property.

Canaco was a TSX-V issuer with a property in Tanzania known as Magambazi on which it had made a gold discovery. On December 3, 2010, its board issued a significant number of options to directors and management. At the time of those grants, the company had in its possession undisclosed drill results from eight drill holes. In internal emails, the directors described the results as “just beautiful, “spectacular” and “fantastic news”.

Canaco disclosed the drill results in three separate news releases on December 6, 9 and 22, 2010 (that is, after the option grants). Two of those news releases described the drill results as “spectacular”. On each of the three days that the drill results were announced, the stock price rose. On two of those days, the price increases were significant. The TSX-V subsequently ordered the company to re-price the options to reflect the (much higher) market price following dissemination of the news releases.

Continue Reading...

OSC initiates consultation on disclosure of women on boards

Alix d'Anglejan-Chatillon and Amanda Linett -

On July 30, the Ontario Securities Commission initiated a public consultation process that seeks to address the underrepresentation of women on boards and in positions of senior management of TSX-listed issuers.  The consultation process follows a request by the Ontario government in the 2013 Ontario budget tabled last May that the OSC make recommendations as to the best way to move forward with enhanced gender diversity disclosure "to facilitate the participation of women on the boards and in senior management of major issuers”.

Consultation highlights

To that end, on July 30, 2013, OSC staff released Consultation Paper 58-401 Disclosure Requirements Regarding Women on Boards and in Senior Management (the Paper) that discusses potential changes to the corporate governance disclosure rule in the form of a “comply or explain” model of disclosure regarding representation of women on boards and in senior management.

Continue Reading...

OSC fires warning shot for mining issuers in technical report review

Tim McCormick -

The OSC recently published a Report setting out OSC Staff's findings of their compliance review of technical reports filed by mining issuers. In reviewing the findings outlined in the Report, it is clear to me that Staff is troubled by the frequency of non-compliance with Form 43-101F1. The Report should consequently be considered fair warning of the types of issues that Staff may raise when reviewing technical reports. The following highlights relevant considerations for issuers based on Staff’s observations, followed by a summary of the findings of the Report.

The Rubber Hits the Road…

Given the tone of the Report, issuers must recognize that compliance with the requirements of NI 43-101 and Form 43-101F1 are a priority for OSC Staff. The Report is intended to clarify existing disclosure requirements relating to technical reports and not to create or modify any new legal requirements or modify existing ones. That said, it is clear that Staff is of the view that the current legal requirements are not being satisfied, to varying degrees, in the majority of reports that were reviewed. For the purposes of their review, the OSC chose a representative sample of reports filed from June 2011 to June 2012. Specifically, the Report identified a non-compliance rate of 80% and sets out guidelines to assist issuers in complying with technical disclosure requirements.

Continue Reading...

CSA abandon proposal to implement tailored disclosure regime for venture issuers

Tim McCormick -

The CSA announced today that they are no longer pursuing the implementation of a proposed new regulatory regime for venture issuers.

Proposed National Instrument 51-103 would have resulted in a separate regulatory regime for venture issuers which, while intended to be more tailored and streamlined, would have resulted in a comprehensive overhaul of applicable prospectus and private placement requirements, as well as continuous disclosure and governance obligations. We previously discussed the proposed versions of NI 51-103 in September 2011 and September 2012.

The CSA’s decision to abandon the proposal was reportedly affected by, among things, concerns expressed by commenters on the burden it would impose on venture issuers in terms of transition to a new regime, and the proposed new disclosure obligations such as the proposed mandatory annual report.

Venture issuers can thus rest assured that they will not have to contend with any such changes to applicable regulatory obligations for the time being. However, the CSA have also stated that certain proposals contained in the proposed National Instrument 51-103 may be added to the existing regulatory regime for venture issuers. Any such potential amendments would only be implemented following a further comment and review process and would, therefore, not be implemented in the short term. Whether the CSA will pursue such amendments also remains to be seen.

For more information, see CSA Notice 51-340

CSA release results of continuous disclosure review program

Ramandeep Grewal -

The CSA released a staff notice last week setting out the results of its continuous disclosure review program for fiscal 2013. Specifically, the CSA completed a total of 1,336 CD reviews during the year, resulting in 47% of issuers reviewed being required to take some action to improve disclosure. This was an improvement from the 56% of issuers that were required to take action in fiscal 2012. Meanwhile, 26% of reviews resulted in issuers being expected to provide enhanced continuous disclosure documents in future filings, including with respect to financial statements, MD&A and executive compensation disclosure.

Such review reports provide insight into regulatory staff’s views on how to interpret and apply form requirements relating to a wide range of disclosure obligations. As such, they can be used to enhance disclosure and clarify requirements that may be ambiguous or otherwise subject to varying interpretation. These, and other useful staff guidance, are tracked on our Continuous Disclosure Guide, which also cross-references the guidance to the relevant disclosure form.

Of the reviews completed, 72% were issue-oriented reviews, which included reviews of mining, oil and gas technical disclosure, cash-flow disclosure, IFRS transition disclosure and compliance with respect disclosure obligations regarding operating segments. A number of common deficiencies were identified in respect of these issues-based reviews, including: (i) inadequate classification of cash flows between operating, investing or financing activities in financial statements; (ii) incomplete or unclear discussion of the issuer's exposure to liquidity risks arising from financial instruments; and (iii) insufficient descriptions of the effect of IFRS transitions and the omission of certain reconciliations with previous Canadian GAAP - Part V.

Continue Reading...

CSA adopting instrument consolidating SEDAR and NRD system fees

The CSA announced on July 18 the adoption of Multilateral Instrument 13-102 System Fees for SEDAR and NDR. MI 13-102 consolidates and replaces the existing system fee schedules found in the SEDAR Filer Manual and NRD  (National Registration Database) User Guide. The instrument was initially published in January, and the revisions made to the draft are not considered material.

These amendments relate to “system” fees payable to Canadian securities regulatory authorities in connection with SEDAR filings and will result, generally, in an overall reduction in the fees currently charged under the SEDAR Filer Manual or the NRD User Guide. These are separate from the “activity” and “participation” fees otherwise charged by Canadian securities regulatory authorities under local rules and policies.

Assuming Ministerial approvals, the instrument is expected to come into effect on October 12, 2013.

Correction: The original notice contained errors, which have now been corrected.

OSC identifies issues with investment funds' marketing materials

The Ontario Securities Commission Investment Funds Branch released a notice today setting out the findings of a targeted continuous disclosure review of advertising and marketing materials of publicly offered investment funds. While the review included conventional mutual funds, closed-end funds, exchange-traded funds, commodity pools and labour sponsored investment funds, the OSC focused to some degree on conventional mutual funds as the advertising with this type of fund is primarily targeted to retail investors.

While the report noted general compliance with disclosure requirements related to sales communications, a number of issues were identified. For example, the OSC noted that some basic requirements like providing the date of first publication for a written sales communication, were frequently not met. Ultimately, the reviews led to, among other things, a commitment by fund managers to review older marketing materials more frequently to ensure they remain in compliance with current requirements, the replacement of misleading performance charts, and the removal of potentially misleading headlines, slogans and statements from materials.

Of particular interest, the report takes note of internet advertising. On that topic, the report encourages fund managers to consider the appropriateness of new media formats where "content limitations prevent the fund manager from providing clear, accurate and balanced messages in the sales communication". Warning language, in Staff's view, must be visible on the same page as the sales communication or within one click, and disclaimers should be easily comprehensible to retail investors on first viewing of the advertisement.

Guidance based on OSC Staff's observations from the reviews was also provided. For more information, see OSC Staff Notice 81-720.

CSA identify deficiencies in firms' relationship disclosure information practices

The Canadian Securities Administrators today released the findings of a review of the relationship disclosure practices of registered portfolio managers and exempt market dealers. Specifically, the review of a representative sample of 124 registered firms sought to assess compliance with section 14.2 of NI 31-103 Registration Requirements, Exemptions and Ongoing Registrant Obligations.

Ultimately, the CSA identified a number of deficiencies in the reviewed firms' relationship disclosure information. The staff notice specifically highlighted that registered firms were deficient by, among other things: (i) providing unclear disclosure regarding the type or nature of the account they managed for particular clients; (ii) not specifically providing information to clients regarding the types of securities in which they invest to fulfill an investment mandate; (iii) providing only a generic list of risks without describing the risk implications on clients' investment decisions and in some cases discussing risks verbally without providing clients anything in writing; (iv) not providing clients with information regarding the risks of using borrowed money to invest; (v) not adequately providing clients with information regarding conflicts of interest; (vi) referring to costs and fees generally and not providing specific and meaningful information; and (vii) not explaining the terms of the know-your-client form to clients.

The staff notice also provides guidance to assist firms in satisfying regulatory requirements. According to the CSA, relationship disclosure practices will be reviewed during ongoing compliance reviews and the guidance set out in the notice will be applied when assessing compliance.

For more information, see CSA Staff Notice 31-334.

U.S. court vacates SEC Resource Extraction Issuer Disclosure Rules

Ivan T. Grbešić -

While it was recently announced that new Canadian transparency rules are expected for mining and oil and gas companies, on July 2, 2013, the U.S. District Court for the District of Columbia (the Court) vacated the resource extraction issuer disclosure rules (Rule 13q-1 under the Securities Exchange Act of 1934) adopted last year by the Securities and Exchange Commission (SEC) pursuant to Section 1504 of the Dodd-Frank Wall Street Reform and Consumer Protection Act. The disclosure rules adopted by the SEC in August 2012 required “resource extraction issuers” to file and publicly disclose annual reports with information relating to taxes, royalties, fees (including license fees), production entitlements, bonuses, and other material benefits paid by such issuer, a subsidiary of the issuer or another entity under the issuer’s control to certain governments in connection with the commercial development of oil, natural gas, or minerals, beginning with fiscal years ending after September 30, 2013.

The disclosure rules were challenged by way of a motion for summary judgment by the American Petroleum Institute, among other associations of oil, natural gas, and mining companies whose members were subject to the rules. The Court found that the SEC “misread the statute to mandate public disclosure” of the reports of each resource extraction issuer. The Court also determined that the SEC’s “decision to deny any exemption” under the disclosure rules “was, given the limited explanation provided, arbitrary and capricious”.

Continue Reading...

OSC's upcoming priorities include shareholder democracy and access to capital

The Ontario Securities Commission yesterday released its statement of priorities for the fiscal year ending March 31, 2014. The statement follows the OSC's publication of a draft in April, and takes into account stakeholder comments received in response to the draft.

Of note, among the priorities listed for the upcoming year, will be a focus on improving shareholder democracy by facilitating the adoption of majority voting by TSX-listed issuers and publishing a consultation paper on key proxy voting infrastructure issues. The TSX announced in October 2012 that it intends to impose majority voting on all of its listed issuers as of December 31st of this year. The OSC states in its statement that it is supportive of the TSX’s initiative and that numerous commentators encouraged the OSC to continue to review shareholder democracy issues as outlined in 2011 in OSC Staff Notice 54-701. With respect to proxy voting infrastructure, the CSA plan to publish a concept paper this summer to outline and seek feedback on key issues.

Other priorities include a focus on disclosure, mainly through cost disclosure and performance reporting by advisers and dealers, delivery of fund facts in the place of a mutual fund prospectus and developing a summary disclosure document for exchange-traded funds or ETFs.

The OSC will also continue its study of a best interest duty on dealers and advisers and its discussion of mutual fund fees and fees for other investment products. Capital market structure and capital raising will be on the agenda as well, with the aim of completing stakeholder consultations on last year's prospectus exemption consultation paper and looking at options to expand access to capital for Ontario issuers, including an examination of Canada's capital market structure and the impact of the order protection rule, electronic trading and market data fees. Finally, as has been the focus for the last few years, in accordance with its G20 commitments, the OSC will also continue working with other CSA members towards implementation of an OTC derivatives regime, including with respect to clearing and trade reporting.

OSC finds "unacceptable" level of compliance with mining disclosure

Tim McCormick -

The Ontario Securities Commission today published a report setting out Staff's findings in respect of a recent compliance review of technical reports filed by mining issuers. The notice provides a summary of the review's results and guidance on complying with disclosure requirements. 

Based on a sample of 50 technical reports selected to comprise a representative sample of issuers, the OSC found that 80% had some form of non-compliance with the requirements with Form 43-101F1 and 40% had at least one major non-compliance concern. Identified concerns included disclosure deficiencies with respect to (i) mineral resource estimates; (ii) environmental studies, permitting and social or community impact; (iii) capital and operating costs; (iv) economic analysis; and (v) interpretation and conclusions. 

The OSC is continuing to actively review technical reports by Ontario mining issuers as part of its overall continuous disclosure review program. In circumstances where issuers have not fully met the requirements of Form 43-101F1, the OSC may request refilings, additional disclosure or other staff action where appropriate. Receipts for prospectus filings may be delayed as a result, particularly for short form prospectus offerings. For more information, see OSC Staff Notice 43-705.

As previously posted on our mining blog, the BCSC also released a report earlier this year identifying deficiencies in mineral disclosure.

CCGG discusses upcoming initiatives at AGM

At its annual general meeting held earlier this week, the Canadian Coalition for Good Governance (CCGG) outlined its activities over the past year as well as current initiatives being pursued. Among other things, the CCGG is working on a policy on dual class share structures, and also plans to release an updated version of its Building High Performance Boards in the near future. The CCGG also stated that it is encouraging the OSC to address the "proxy plumbing" process, and that it expects the Commission to issue a paper on the subject in the next few months.

The keynote speaker for the meeting, Stephen Davis, associate director of Harvard Law School's Program on Corporate Governance, also discussed the need for "prudent ownership" of public corporations in the current era of institutional investors. His proposals on the subject included the adoption of stewardship principles to address the accountability of funds and their behaviour as holders of assets.

OSC calls for improved disclosure of forward-looking information

The Ontario Securities Commission recently released the results of a review of the forward-looking information disclosure of 60 reporting issuers. In its review, the OSC notes that forward-looking information (FLI) is a key area of interest for investors and should provide valuable insight about the issuer’s business and how it intends to attain its corporate objectives and targets. This can be enhanced by incorporating key performance indicators into FLI, thereby providing ongoing disclosure of how the issuer is progressing towards such targets and objectives.

While the requirements relating to the original disclosure and updating of FLI have been in place for many years, they were most recently consolidated and added to National Instrument 51-102 Continuous Disclosure Obligations in 2007. NI 51-102 sets out specific requirements relating to disclosure of FLI, including future-oriented financial information and financial outlooks. The instrument also includes requirements to identify FLI as such, as well as the material factors or assumptions used to develop it and the issuer’s policy for updating FLI if it includes procedures in addition to those described NI 51-102. The issuer must also caution readers that actual results may vary and identify the material risk factors that could cause actual results to differ materially from what was disclosed. These requirements apply irrespective of where the FLI is located or the nature of the document, including website disclosure, news releases and MD&A. Some of these requirements also comprise elements of the defence to misrepresentations in FLI under the secondary market civil liability provisions of the Securities Act (Ontario) and similar provisions of the securities legislation of other provinces.

Continue Reading...

OSC proposes mandatory electronic filing of documents

The Ontario Securities Commission today released a proposed rule that would mandate the filing of certain required documents with the Commission in electronic format. The rule would apply to, among other things certain applications made to the OSC, the calculation of excess working capital form, reports of exempt distribution (45-106F1 and 45-501F1) and, offering memoranda and amendments and notices and documents sent to the OSC under the secondary market civil liability provisions of the Securities Act. The requirement to file electronically would not, however, apply to documents already filed through SEDAR, SEDI or NRD.

While many of the applicable documents would continue to be filed in unstructured format once the new rule took effect, the OSC would eventually migrate to process online forms and structured data.

According to the OSC, mandatory electronic filing would streamline the submission process for market participants, improve data analysis, compliance and enforcement capabilities and reduce the time required to process documents.

SEC comments on corporate disclosures on social media

Kaleb Honsberger -

Earlier this week, the U.S. Securities and Exchange Commission released a report of its investigation regarding whether Netflix and its CEO, Reed Hastings, violated certain securities regulations prohibiting the selective disclosure of corporate information when Hastings posted a comment on his personal Facebook page regarding the achievement of a corporate milestone.

In doing so, the SEC considered the disclosure of corporate information on social media generally, ultimately finding that its 2008 guidance, which discusses the distribution of information on corporate websites, also applies to corporate disclosures made through social media channels such as Facebook and Twitter. Specifically, the SEC stated that where it is reasonably foreseeable that the recipients (securities professionals and/or shareholders) of such information will trade on the basis of such information, it must be disseminated in a manner reasonably designed to provide broad non-exclusionary distribution to the public. To achieve this, issuers must take sufficient steps to alert investors, the market and the media as to the channels that will be used for the dissemination of material, nonpublic information. As an example, the 2008 guidance encourages periodic reports or press releases to include web site addresses or other information regarding steps investors or the public can take to be in a position to receive important disclosure.

Continue Reading...

CSA announce more timely document accessibility on SEDAR

The CSA today announced that they are making enhancements to SEDAR's architecture. These enhancements will result in documents that are filed on SEDAR, and changes to reporting issuer profiles, being available on the SEDAR website within 15 minutes of the original submission. For more information, see CSA Staff Notice 13-318.

CSA clarify disclosure requirements when relying on U.S. disclosure documents to satisfy Canadian disclosure obligations

Tim McCormick -

Today, members of the Canadian Securities Administrators in all jurisdictions other than British Columbia and Alberta released a multilateral staff notice that provides information with regards to the continuous disclosure and prospectus requirements that apply to documents prepared in accordance with the U.S. Securities and Exchange Act of 1934 and filed in Canada.

According to the regulators, staff have noticed that some issuers relying on U.S. filings to satisfy Canadian disclosure obligations are neglecting to include in their Canadian SEDAR filings or disclosure documents all schedules and exhibits to, or documents incorporated by reference in, U.S. filings. In particular, the guidance relates to issuers relying on an annual report under the 1934 Act (on Form 10-K or Form 20-F) as their "annual information form" or "AIF".

As such, the notice reminds SEC issuers filing their (i) 1934 Act annual report as a Canadian AIF; (ii) U.S. disclosure documents in reliance on an exemption under Part 4 of National Instrument 71-102 Continuous Disclosure and Other Exemptions Relating to Foreign Issuers; or (iii) incorporating by reference a 1934 Act annual report in a short form prospectus; that they must file (or incorporate by reference in the case of a short form prospectus) the entire document, including all schedules and exhibits to, and documents incorporated by reference in, the U.S. filings. In the case of short form prospectuses filed in Quebec, any document required to be incorporated by reference (which includes schedules, exhibits and documents incorporated by reference in 1934 Act annual reports), must also satisfy French language requirements unless exemptive relief is obtained.

Continue Reading...

OSC clarifies that notice-and-access is available for OBCA issuers

Ramandeep Grewal and Jonathan Moncrieff -

In a recent post, we discussed a number of matters to consider before implementing notice-and-access for posting proxy-related materials on a website instead of mailing materials to shareholders.

Staff of the Ontario Securities Commission yesterday issued guidance that clarifies some of the matters discussed in our earlier post. Specifically, the guidance sets out OSC staff's interpretation of the interaction of notice-and-access with NP 11-201 Electronic Delivery of Documents as well as the availability of notice-and-access to reporting issuers incorporated under the Business Corporations Act (Ontario).

Specifically, OSC Staff state that, in their view, the definition of the term "send" in the OBCA is inclusive and does not prohibit the use of electronic delivery or electronic documents, including the procedures contemplated by notice-and-access, and that the OBCA does not impose an obligation that a reporting issuer obtain consent to use electronic delivery to send proxy-related materials. Accordingly, Staff conclude that the OBCA does not prevent a reporting issuer from sending proxy-related materials using notice-and-access and they do not think it is necessary for OBCA issuers to obtain exemptive relief in order to use it.

Continue Reading...

Notice-and-access provisions effective this week

The Ontario Securities Commission confirmed today that it has received Ministerial approval of amendments to NI 54-101 that give reporting issuers and others the option to use "notice-and-access" for proxy-related materials. As we discussed last month, the amendments, which came into force on February 11, are intended to help simplify the shareholder communication process and reduce costs.

CSA propose consolidation of SEDAR and NRD system fees

The CSA yesterday published a proposed new national instrument to consolidate and replace the existing system fee schedules found in the SEDAR Filer Manual and NRD User Guide. According to the CSA, the amendments would result in system fees declining in about 40% of SEDAR filing situations and 24% of NRD filing situations. No significant changes to the payment process, however, are expected from a user perspective.

Comments on the proposals are being accepted until April 24, 2013. For more information, see proposed National Instrument 13-102 System Fees for SEDAR and NRD.

Implementing new Canadian "notice-and-access" rules for electronic posting of proxy and other materials

Ramandeep K. Grewal and Jonathan Moncrieff -

The Canadian Securities Administrators (CSA) recently published final amendments to National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer (NI 54-101) that give reporting issuers and others the option to use the “notice-and-access” method to post proxy-related materials on a website (in addition to SEDAR) instead of having to mail materials to registered holders (under National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) and to beneficial owners (under NI 54-101). Under NI 51-102, notice-and-access may also be used to post annual financial statements and management discussion & analysis (MD&A ) in lieu of sending such documents to all securityholders.

As we discussed in November of last year, these amendments are intended to help simplify the shareholder communication process and reduce costs. However, some aspects of the amendments are technical in nature and will require certain changes to the processes that reporting issuers may currently use, including the timing and content of various notices and other documents.

In this, the first part of our two-part series on implementing notice-and-access, we provide a summary of how notice-and-access will work, highlighting items that reporting issuers need to prepare for in advance. In the second part we will examine some of the issues and considerations involved with such implementation.

Continue Reading...

IIROC proposes changes to disclosure requirements for electronic research reports

On December 20, the Investment Industry Regulatory Organization of Canada released proposed amendments to its Dealer Member Rules that would result in the repeal of Dealer Member Rule 3400, Requirement 15 in its entirety and replace it with a requirement that would permit Dealer Members to include in paper based research reports covering more than six issuers, directions as to where the Rule 3400 Disclosures may be found.

The amendments would also require Dealer Members delivering research reports by electronic means to either (i) include the Rule 3400 Disclosures in the body of the research report; or (ii) allow readers to access the Rule 3400 Disclosures by electronic means from within the research report, such as through the provision of a hyperlink.

The proposals are open for a 90-day comment period. For more information, see IIROC Rules Notice 12-0385.

CSA adopt "notice-and-access" allowing electronic posting of proxy and other materials

Ramandeep Grewal -

The Canadian Securities Administrators yesterday announced the adoption of regulatory changes to improve the communications process between reporting issuers and shareholders. Specifically, the amendments would introduce a notice-and-access mechanism for reporting issuers to send proxy-related and other materials to shareholders, simplify the process of appointing beneficial owners as proxy holders and require reporting issuers to provide enhanced disclosure regarding the beneficial owner voting process.

The amendments, which include changes to NI 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuers, NI 51-102 Continuous Disclosure Obligations, and related forms and companion policies, were initially proposed in 2010 and republished in 2011. While the final amendments announced yesterday include changes to the 2011 proposals, the CSA have deemed the changes immaterial and are, thus, not republishing the amendments for further comment.

Continue Reading...

CCGG releases annual best practices for proxy circular disclosure

Earlier this week, the Canadian Coalition for Good Governance (CCGG) released its 2012 Best Practices for Proxy Circular Disclosure. The annual publication, which is intended to provide issuers with guidance on corporate governance and executive compensation disclosure, also includes a list of the CCGG's "Governance Gavel Awards" winners. In determining the winners, which this year include Suncor Energy,  CN Rail and MacDonald, Dettwiler and Associates, the CCGG considered the alignment between an issuer's practices and the recommended practices found in Building High Performance Boards and Executive Compensation Principles.

With respect to the review of disclosure practices, the publication provides a number of examples of actual disclosure the CCGG deems as "excellent", including with respect to topics such as majority voting, director independence, director nominee profiles, board succession, director continuing education, compensation, attendance and evaluation and risk management oversight. The publication also provides examples of "excellent" executive compensation disclosure, including with respect to the effectiveness of compensation programs over time, the linkages between executive compensation and corporate strategy and objectives, and compensation consultants and benchmarking.

OSC provides governance guidance for emerging market issuers

Ed Waitzer -

On November 9, the Ontario Securities Commission released a guide intended to assist boards and management of emerging market issuers (Canadian public companies with significant business operations in emerging markets) in addressing the risks of doing business in emerging markets and satisfying their governance and disclosure obligations. The guide follows a regulatory review of EMIs announced in June 2011 and a subsequent report setting out the results of the OSC's review published in March of this year.  OSC staff has indicated that it expects the guide to be useful to other issuers as well.

The guide highlights eight potential areas of risk which may warrant further scrutiny by emerging market issuers, sets out questions that directors and management should consider in addressing each specific area of risk and outlines expectations regarding compliance with disclosure obligations. The areas of risk identified by the guidance document relate to the need for boards and management of emerging market issuers to: (i) have a thorough understanding of the political, cultural, legal and business environments of the company; (ii) incorporate appropriate policies to overcome language and cultural barriers; (iii) design an appropriate corporate structure that takes into account the political, legal and cultural realities of emerging markets; (iv) effectively identify and monitor related party transactions to prevent abuse; (v) have a sufficient understanding of legal, regulatory, political and cultural risks impacting the company and evaluate these risks in the context of the specific emerging market; (vi) ensure the effectiveness of internal controls; (vii) evaluate the risks associated with the use of and reliance on experts in emerging markets; and (viii) ensure that external auditors have appropriate expertise and experience and that the audit committee can effectively oversee an external auditor's work.

The guide is not intended to be exhaustive (for example, there is no reference to reverse take-over transactions as a listing device) or to create new legal obligations (or modify existing ones).

According to the OSC, the unique challenges of operating in emerging markets require boards to "take extra measures to ensure investors' interests are protected."  For more information, see OSC Staff Notice 51-720.

OSC staff comment on the degree of "control" that will determine a fund's status as an "investment fund" and other matters

The OSC's Investment Funds Branch yesterday released the November 2012 issue of its Investment Funds Practitioner. The publication is intended to provide an overview of issues identified by the Branch in recent filings made by investment funds and is published on a periodic basis.

In this edition of the newsletter, of particular interest are the Branch's comments regarding when an entity meets the definition of a "non-redeemable investment fund". Consistent with what the OSC (and other Canadian Securities Administrators’) staff have said in the past, the newsletter states that staff continue to regard an investment fund as an issuer that does not seek to exercise control over or become involved in the management of investee companies, and that they generally expect the investment approach to be passive in nature.  However, the newsletter goes on to state that, in staff’s view, “any degree of control or active involvement in the management of the investee companies by an issuer would mean that the issuer is not an investment fund.” 

Continue Reading...

CSA moves forward on proposed tailored regime for venture issuers

Tim McCormick and Deana Toner -

The Canadian Securities Administrators (CSA) have published for comment a revised proposal for a new regulatory regime for venture issuers under Proposed National Instrument 51-103 Ongoing Governance and Disclosure Requirements for Venture Issuers (NI 51-103). Under NI 51-103, originally proposed in July of 2011, the CSA hope to usher in a tailored regime for venture issuers. As discussed in a post earlier this month, the highlights of the proposal include a new “annual report” to replace in large part the continuous disclosure that is currently required, as well as the elimination of business acquisition reports (or BARs).

Objectives of NI 51-103

In proposing this regime for venture issuers the CSA has four objectives: (i) to improve access to key information and facilitate informed decision-making by venture issuer investors; (ii) to allow venture issuer management more time to focus on the growth of their company’s business by reducing the time venture issuer management have to spend reading and trying to understand disclosure requirements; (iii) to enhance investor confidence in the venture market by introducing substantive governance standards relating to conflicts of interest, related party transactions and insider trading; and (iv) to enhance the ability of securities regulators to focus on the unique challenges associated with the venture market when considering rule-making.

The CSA received 69 comment letters in response to the original proposal. The most significant revisions in the new proposal relate to continuous disclosure and governance.

Continue Reading...

CSA revise proposals regarding venture issuer governance and disclosure

The Canadian Securities Administrators today published for comment revised proposals to tailor and streamline the governance and disclosure requirements applying to venture issuers. As we discussed last year, the CSA originally published regulatory proposals concerning venture issuers in July 2011. According to the CSA, the version released today has been revised to take into account comments received from stakeholders in response to the earlier proposals.

As with the version released last year, today's proposal would see the adoption of National Instrument 51-103 Ongoing Governance and Disclosure Requirements for Venture Issuers to replace, for venture issuers only, the continuous disclosure, governance and other obligations currently found in various other national instruments.

Among other things, the proposals would (i) consolidate the required disclosure for a venture issuer's governance practices, audited annual financial statements, associated MD&A and CEO/CFO certifications into an annual report; (ii) replace the interim MD&A requirements with a requirement for a short discussion of the venture issuer's operations and liquidity to accompany the 3, 6 and 9 month interim financial reports; (iii) replace the requirement for business acquisition reports in connection with acquisitions of significant businesses with enhanced continuous disclosure reporting; (iv) introduce substantive corporate governance requirements relating to conflicts of interest, related party transactions and insider trading; (v) tailor and streamlining director and executive compensation disclosure; and (vi) allow for the delivery of disclosure documents, such as annual reports and interim reports on request in lieu of mandatory mailing.

Meanwhile, prospectus requirements applicable to venture issuers would also be relaxed to, among other things, require that only two years of audited financial statements be included in a long form prospectus instead of three, and permit a venture issuer to incorporate by reference the continuous disclosure documents prepared under the national instrument when preparing a short form prospectus, qualifying issuer offering memorandum or a TSX-V short form offering document.

According to the CSA, the new instrument would improve investors' access to key information by tailoring disclosure requirements for venture issuers, eliminating certain disclosure obligations that may be of less value and requiring supplemental disclosure relevant to venture issuer investors. The CSA is accepting comments on the revised proposals until December 12, 2012.

OSC proposes increase in fees

On August 23, 2012, the Ontario Securities Commission (OSC) published proposed amendments to its fee rule, 13-502.

Being a self-funded agency, and citing issues like the increasing need to deal with regulatory matters on an international level and the complexity added by technological advances in trading and trading strategies and products, fees are generally proposed to be increased over the three years following implementation of these proposals. While fees for both registrants and issuers are proposed to be increased, the increase will represent a 7.9% increase per year for registrants, as compared to 15.5% for issuers, in an attempt to continue to bring the balance for the two groups closer to 50/50.

For example, the annual corporate finance participation fee for issuers in the $50 million to under $100 million capitalization category is slated to increase from the current $5,125 to $5,925 effective April 1, 2013, and then increasing to $6,850 and $7,900 over the following years. The annual capital markets participation fee for registrants in the $1 million to $3 million (Ontario revenues) category, for example, is slated to increase from the current $7,250 to $7,825 effective April 1, 2013, and to $8,400 and then $9,110 over the following two years.

Continue Reading...

OSC seeks improvement in disclosure of investment funds' portfolio holdings

Last week, the Ontario Securities Commission released a notice reporting on staff's continuous disclosure review of investment funds' portfolio holdings. Ultimately, the report found that funds' continuous disclosure could be improved in order to provide "more meaningful information" regarding portfolio composition and how a fund's investments align with the investment objectives set out in the fund's prospectus.

Specifically, the report noted a few key trends: (i) the use of portfolio categories that did not reflect the unique characteristics of the fund as set out in its investment objectives; (ii) inconsistencies in the categories used across different disclosure documents of the fund to describe the investments in the portfolio; and (iii) the use of broad, generic categories rather than more specific categories that would provide more meaningful information on portfolio composition and the alignment with investment objectives.

Continue Reading...

British Columbia, Alberta and Quebec issue blanket relief in attempt at rolling back application of new OTC issuer rule

Alix d’Anglejan-Chatillon, Jeffrey Elliott, Ramandeep Grewal, Ralph Hipsher and Jason Streicher -

The securities commissions in British Columbia, Alberta and Quebec have each issued separate blanket orders exempting certain issuers from the application of Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets (the Instrument). As discussed in detail in our post dated June 25, the final Instrument was to officially come into force on July 31, 2012 (assuming receipt of ministerial approval, as required) in each of the Canadian jurisdictions, other than Ontario (the Adopting Jurisdictions).

In each of the Adopting Jurisdictions, the Instrument imposes Canadian “reporting issuer” type obligations and other additional burdensome requirements on issuers having a class of securities that have been assigned a ticker symbol by the Financial Industry Regulatory Authority (FINRA) for quotation on an OTC market in the United States, and that do not otherwise have a class of securities listed or quoted for trading on a recognized North American stock exchange prescribed in the Instrument (being the TSX, the TSX-V, the CNSX and Alpha, in Canada and the NYSE, AMEX and NASDAQ, in the United States) where: (i) the issuer’s business is directed or administered from an Adopting Jurisdiction; (ii) the issuer, or a person acting on its behalf, engages in promotional activities in an Adopting Jurisdiction that promote or could be reasonably expected to promote the purchase or sale of the issuer’s securities; or (iii) at any time on or after July 31, 2012, the issuer is assigned a ticker symbol by FINRA for use on OTC markets in the United States, and on or before such date, the issuer distributed securities to a resident in an Adopting Jurisdiction where those securities become the issuer’s OTC-quoted securities.

Continue Reading...

IIROC to update guidance on marketplace disclosure for trade confirmations

On July 27, the Investment Industry Regulatory Organization of Canada (IIROC) released proposed guidance respecting the marketplace disclosure language it would deem acceptable for trade confirmations. The guidance follows its April 2010 proposal, expected to be approved by securities regulators on or before October 15, 2012, that would require trade confirmations to disclose the marketplace on which a trade was executed or other marketplace language acceptable to IIROC.

Assuming approval of the proposed amendments, IIROC would deem the following disclosure language acceptable where an order was executed on a single marketplace in Canada, multiple marketplaces in Canada, a foreign organized regulated market (including one in the U.S.), or any combination of one or more marketplace and foreign organized regulated markets:

"Traded on one or more marketplaces or markets, details available upon request."

The guidance would be effective October 15, 2012, which would coincide with the implementation date of UMIR amendments respecting the regulation of short sales, failed trades, dark liquidity. For more information, see IIROC Notice 12-0236.

Updated guidance for applications to cease to be a reporting issuer

The CSA yesterday issued a new version of CSA Staff Notice 12-307, which sets out guidance on coordinated review applications made under NP 11-203 for a decision that an issuer is not a reporting issuer. The notice covers such topics as: (i) applying for a decision under a simplified procedure; (ii) applying for a decision where an issuer is not eligible to use a simplified procedure; (iii) describing the decision sought in an application in a way that addresses legislative differences between jurisdictions; (iv) applying for a decision in the case of foreign issuers with a small securityholder presence in Canada; and (v) the procedure for dissolved issuers.

Notably, the amended notice now clarifies that the simplified procedure for coordinated review applications is only available to issuers whose securities, including debt securities, are not traded on a marketplace in Canada or in another country and expands the restriction to include any other facility for bringing together buyers and sellers of securities where trading data is publicly reported. Meanwhile, the notice now also states that the simplified procedure and the modified approach are not available to "OTC reporting issuers", as defined in Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets (and as discussed in our June post).

Further, the notice reminds issuers that a decision obtained under a coordinated review applications is only applicable for the purposes of securities legislation. Depending on the jurisdiction, an issuer may also have to make a separate application under the business corporations legislation under which it was incorporated, continued or amalgamated for an order that it is no longer a public company.

The OSC has also issued its own staff notice with regards to applications made to the OSC only .

For more information, see CSA Staff Notice 12-307 Applications for a Decision that an Issuer is not a Reporting Issuer and OSC Staff Notice 12-703 Applications for a Decision that an Issuer is not a Reporting Issuer.

CSA release continuous disclosure review report for fiscal 2012

The Canadian Securities Administrators yesterday released a staff notice summarizing the results of the CSA's continuous disclosure review program for fiscal 2012. Beyond identifying disclosure deficiencies, the notice also provides guidance intended to assist issuers in addressing common issues.

Of the approximately 4,200 issuers in Canada (other than investment funds), the CSA completed 1,351 full or issue-oriented reviews. Ultimately, 56% of review outcomes required issuers to take action to improve disclosure, which was a decrease from the 70% required to take action in fiscal 2011. The most common outcome involved an issuer being informed of changes or enhancements required in its next filing.

Issue-oriented reviews

Common deficiencies in the CSA's IFRS issue-oriented review included not clearly labeling and identifying the accounting principles used when presenting a mix of financial information in accordance with pre-changeover Canadian GAAP and IFRS in the MD&A. Issuers also commonly neglected to include a statement of changes in equity for the comparative interim periods.

Continue Reading...

BCSC digs deep into Qualified Person's expert disclosure

Raymond McDougall -

In late June, Barkerville Gold Mines Ltd. announced major estimates of resources and “geological potential”. The sizes of the estimates were remarkable - indicated resources of 10.6 million ounces of gold and “geological potential” of 65-90 million ounces of gold. That announcement was followed last week by a Barkerville press release indicating that the British Columbia Securities Commission had reviewed the company’s technical disclosure and draft technical report and expressed concerns with both estimates. In the latter press release, Barkerville cautioned investors against relying on either of the disclosed estimates until the BCSC completed its technical disclosure review.

What strikes me as interesting about this situation is what stands out about the facts and the approach the BCSC is taking here. On the facts, the sizes of the estimates certainly made the original announcement hard to miss. One could also consider whether disclosing “geological potential” is what caught the attention of the regulators. While issuers are permitted to say certain things about the potential of exploration targets, the principle underlying NI 43-101 is that mineral disclosure should be based on various levels of certainty. The further one moves away from certainty, the trickier the disclosure can become and the more limited it arguably should be.

Continue Reading...

SEC prohibits listings of issuers not in compliance with compensation requirements

On June 20, the U.S. Securities and Exchange Commission announced the adoption of new rules and amendments to its proxy disclosure rules that would generally prohibit national securities exchanges from listing the equity securities of an issuer that is not in compliance with compensation committee independence requirements. Publication of the rule and amendments follow an initial proposal published in March 2011, and the final version addresses comments received by the SEC.

As we discussed in our earlier blog post, foreign private issuers that disclose in their annual report the reasons for not having an independent compensation committeee would be exempt from the relevant independence requirements. Those subject to U.S. proxy rules, however, would also be subject to certain disclosure related to compensation consultants.

US OTC market issuers could become subject to Canadian reporting obligations

Ralph Hipsher, Alix d’Anglejan-Chatillon and Ramandeep Grewal -

The Canadian Securities Administrators in each province and territory of Canada other than Ontario (the adopting jurisdictions) recently adopted Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets. As we’ve previously discussed, MI 51-105 is scheduled to come into force on July 31, 2012 and, assuming ministerial approval, will have significant implications for issuers that have, or will have in the future, a class of securities that are quoted on over-the counter markets in the United States and who do not also have securities that trade on the North American stock exchanges specified in the Instrument.

By operation of the Instrument, an issuer will become subject to Canadian public company reporting obligations where the issuer, among other things, engages in promotional activities in furtherance of the purchase or sale of their securities, either directly or through a third party representative, in or from an adopting jurisdiction on or after July 31, 2012, or where the issuer otherwise previously distributed securities to persons resident in an adopting jurisdiction if the issuer is subsequently assigned a ticker symbol by the Financial Industry Regulatory Authority in the United States (FINRA) for use on OTC markets in the United States at any time after July 31, 2012. 

Continue Reading...

CSA update proposals regarding Fund Facts delivery

The CSA today published for a second time proposed amendments to NI 81-101 Mutual Fund Prospectus Disclosure regarding the delivery of Fund Facts following the purchase of a mutual fund. As we discussed last year, the CSA initially released their Stage 2 proposals in August 2011, and the current version of the amendments are intended to address stakeholder feedback.

Stage 2 of the point of sale disclosure framework is intended to allow the delivery of Fund Facts to satisfy the requirements under securities legislation to deliver a prospectus within two days of buying a mutual fund. The changes published today focus primarily on the requirements regarding the presentation of risk in the Fund Facts document.

Comments on the proposed amendments are being accepted until September 6, 2012.

OSC releases tips for filing reports of exempt distribution

The OSC today released a notice providing guidance for issuers and advisors preparing and filing reports of exempt distribution under NI 45-106 Prospectus and Registration Exemptions. Among other things, the notice reminds filers to identify the correct prospectus exemption relied on for the distribution in Ontario (and specifically notes that certain exemptions, like the family, friends and business associates exemption, are not available in the province) and states that an explanation should be provided if the purchase price for the securities distributed is $0. As we discussed in April, CSA staff recently released a notice highlighting issues identified in reports of exempt distributions and providing guidance relevant to the preparation of the form.

The OSC also announced that an electronic version of Form 45-106F1 Report of Exempt Distribution will now be available on its website. The form, which is required in respect of distributions made in reliance on certain specified prospectus exemptions, can now be filled out and submitted online.

For more information, see Staff Notice 45-708 and Staff Notice 45-709.

Regulator guidance on preliminary economic assessments expected soon

Raymond McDougall -

As discussed last week, I recently attended the 2012 Mine Accounting & Reporting Update conference in Toronto. Of the range of topics covered at the conference, staff of the Ontario Securities Commission also had occasion to highlight issues arising in connection with the use of preliminary economic assessments (PEAs).  

Prior to the implementation of the amendments to National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101) last June (we discussed the amendments in an earlier blog post), a “preliminary assessment” was defined to be an assessment as to economic viability undertaken at an early stage in a project, “prior to the completion of any preliminary feasibility study”. The principle was, as it has always been, that an issuer would use a scoping study or PEA to provide initial indications as to economic viability, but not to tack on extra information that should be included within a preliminary feasibility study (PFS) or feasibility study (FS). The issue is that disclosure of PEA results is not meant to be a means to provide extra economic information beyond the information provided in the issuer’s PFS or FS at some lesser standard of detail or more relaxed level of analysis than required in a PFS or FS.

Continue Reading...

More insight from OSC Staff on NI 43-101 compliance issues for website and third party disclosure

Raymond McDougall -

Last week, I had the opportunity to present at the 2012 Mine Accounting & Reporting Update conference held in Toronto. The conference covered a variety of topics of interest to mining and exploration issuers, including the issue of website and third party disclosure about which we wrote in early May

At the conference, OSC Staff expanded on their views on this issue, including with reference to our own blog post on the subject. With respect to compliance with National Instrument 43-101 Standards of Disclosure for Mineral Projects, OSC Staff are of the view that if you publicly disclose it, post it, or link to it, then you "own it” and are responsible for ensuring that the disclosure complies with NI 43-101. 

In respect of certain circumstances, such as an issuer’s own fact sheets, presentation slides or other “written disclosure” (as defined in NI 43-101), last week’s presentation by OSC Staff provided a useful reminder for issuers. However, on the subject of website and third party disclosure, the presentation provided confirmation that OSC Staff are continuing to look beyond the disclosure produced by an issuer itself and will consider all disclosure and information the issuer has endorsed (in posting the information or linking to it) when reviewing the issuer's compliance with NI 43-101. In particular, as noted in our earlier post, issuers should be particularly mindful with respect to analysts’ reports (governed also by National Policy 51-201 Disclosure Standards) and quoting or linking to media coverage of any kind.

During the conference, OSC staff also expanded on the use of preliminary economic assessments, an issue that I will canvass in a forthcoming post.  

OTC issuer disclosure rules effective July 31, 2012

The Canadian Securities Administrators, except for the OSC, today released Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets, intended to improve disclosure by issuers whose securities are quoted in U.S. OTC markets and with a significant connection to a Canadian jurisdiction. The instrument is also intended to discourage the manufacture and sale in Canada of U.S. OTC quoted shell companies that can be used for abusive purposes.

As we discussed in our post describing a draft version of the rule published in June 2011, a significant connection to a Canadian jurisdiction will be found to exist where (i) the OTC issuer's business is directed or administered in or from Canada; (ii) promotional activities are conducted from Canada; or (iii) the issuer distributes securities in Canada prior to obtaining a ticker symbol for the purpose of having its securities quoted on an OTC market in the U.S. and those securities become the issuer's OTC-quoted securities. Under the new rules, issuers subject to the instrument will generally have to comply with the continuous disclosure regime to which venture issuers are subject and, additionally, file annual information forms (which venture issuers may do voluntarily, but are not required to). 

The instrument follows British Columbia's adoption of a local rule regulating issuers quoted in U.S. OTC markets and that have a significant connection to B.C. Having found that the adoption of the B.C. rule resulted in OTC issuers migrating to other Canadian jurisdictions, the CSA released a proposed draft of the multilateral instrument in June 2011. The final version released today reflects the comments received to the proposed draft. Assuming ministerial approvals are obtained, the OTC rule will come into force on July 31, 2012.

"Did we really say that?" - Website and third party disclosure considerations for resource issuers

Maurice Swan and Andrew Bozzato -

While a company’s website can host a wealth of information and form a key part of an investor relations strategy, managing that information also poses unique challenges. These challenges are heightened for resource issuers given the additional disclosure obligations under National Instrument 43-101 Standards of Disclosure for Mineral Projects that apply to technical or scientific disclosure.  In particular, companies should carefully consider how their disclosure obligations under securities laws generally, and NI 43-101 in particular, are impacted by third party information that is republished or linked to from the company’s website.

NI 43-101 provides a comprehensive code governing disclosure of scientific or technical information by resource issuers. Under the Instrument, “disclosure” includes any written or oral disclosure made by or on behalf of the issuer that is intended to or reasonably likely to be made available to the public in Canada, and “written disclosure” is specifically defined to include any “writing, picture, map or other printed representation whether produced, stored or disseminated on paper or electronically, including websites.”

Continue Reading...

OSC releases April 2012 issue of Investment Funds Practitioner

Darin Renton -

The Investment Funds Branch of the Ontario Securities Commission recently published the April 2012 issue of its Investment Funds Practitioner. The publication provides an overview of issues identified by the Branch arising from exemptive relief applications, prospectus filings and continuous disclosure documents filed by investment funds with the OSC.

Prospectus Issues

The Practioner highlights a number of issues that have come to light in the course of prospectus reviews, including amending a final prospectus to fix incorrect fee disclosure, and fund names that are inconsistent with the fund's investment objectives or strategies. On the latter issue, Branch Staff state that fund managers should select names that "closely reflect the fund's investment objectives" and that distinguish the funds from others. Branch Staff will consider whether additional guidance or rule-making is needed on this point.

Continue Reading...

Regulatory challenges faced by resource issuers on recent bought deals

Ivan Grbešić and Tim McCormick

A great deal of attention has been focused recently on challenges faced by issuers in the resource sector, particularly in connection with short form prospectus distributions and the ability to respond to comments on technical disclosure within the timeframes of the deal.

In December of 2011, we saw the first of a series of short form prospectus offerings being withdrawn.  Karnalyte Resources filed a preliminary short form prospectus on December 5 for its $115 million offering of common shares, with an expected closing date of December 19, 2011. On December 13, the company issued a press release indicating it was no longer proceeding with the offering as the final short form prospectus could not be filed within the required timeframe “as a result of the delay” caused by comments raised by regulators on its technical report. (The Company subsequently filed an amended and restated technical report effective March 30, 2012, announcing via press release on the same day that it had responded to the regulators’ comments over the past few months and, as a result, was filing the amended and restated report.)

Continue Reading...

IFRS for investment funds deferred until January 1, 2014

The Canadian Securities Administrators (CSA) today released an updated version of Staff Notice 81-320 regarding the adoption of IFRS by investment funds in Canada. The notice was first published in October 2010, and revised in March 2011. Ultimately, the revisions to the notice reflect the fact that the Accounting Standards Board has extended the mandatory changeover date to IFRS for investment funds to January 1, 2014. According to the AcSB, the deferral reflects the likelihood that the IASB will not issue proposed guidance on investment entities before January 1, 2013.

Proposed changes to the UK's Listing Rules - Key changes explained

Kate DaSilva and Stanley McKeen -

In January of this year the U.K. securities regulator, the Financial Services Authority (the FSA), issued Consultation Paper CP12/2 proposing amendments to rules applied by it as the UK Listing Authority to companies listed or seeking listings on the UK’s regulated stock market (the Listing Rules). As we discussed briefly earlier this week, the paper proposes a series of changes, primarily to the Listing Rules, but also to rules which apply to prospectuses being issued in the UK (the Prospectus Rules) and to the on-going share capital, financial and other disclosures required in respect of companies listed in the UK (the Disclosure and Transparency Rules). Key proposed amendments apply to transactions, reverse takeovers (RTOs), externally managed companies (also known as special purpose acquisition companies or "SPACs"), the sponsor regime and the ability to buyback more than 15% of a company’s own shares.   

Continue Reading...

OSC identifies concerns arising from review of emerging market issuers

The Ontario Securities Commission today published a Staff Notice outlining areas of concern relating to emerging market issuers. As we discussed last summer, the OSC recently undertook a targeted review of Ontario reporting issuers with significant business operations in emerging markets following the disclosure-related allegations made against Sino-Forest. According to the OSC, the regulator wanted to "ensure that any systemic or specific issues" affecting such issuers were addressed in light of the importance of emerging market issuers in the Canadian and global marketplace.

To that end, the OSC reviewed 24 issuers ranging across various industries such as mining, forestry, financial services and technology. Among other things, the review involved an examination of the public disclosure records of the selected issuers, as well as examinations of board and audit committee activities.

Ultimately, the OSC identified four principal concerns arising from its review, namely with respect to: (i) the level of issuer governance and disclosure; (ii) the adequacy of the audit function for annual financial statements; (iii) the adequacy of the due diligence process conducted by underwriters in offerings of securities; and (iv) the nature of the exchange listing approval process. Of particular interest, the OSC noted that it is concerned that emerging market issuers may be employing an approach of "form over substance" with respect to compliance. Meanwhile, the OSC also noted that the fact that many of the issuers had little presence in Canada contributed to a "separation" between management functions in the emerging market jurisdiction and Canadian governance.

Ultimately, the report provides a list of recommendations to guide emerging market issuers, their auditors and underwriters and exchanges in addressing the OSC's concerns. For more information, see OSC Staff Notice 51-719.

CSA provide further guidance on disclosure of additional GAAP measures

The CSA announced today that it has updated Staff Notice 52-306 (Revised) to provide further guidance on the disclosure of additional GAAP measures presented under IFRS. Among other things, the revised notice provides a list of suggested practices to help issuers and certifying officers address obligations in relation to additional GAAP measures. The notice was last updated in November 2010.

Coventree sanctions decision raises interesting points

Simon Romano -

On December 23, the Ontario Securities Commission released its reasons for imposing sanctions in its case against Coventree Inc. and two of Coventree's directors. As we discussed in an earlier post, the Commission recently ordered Coventree to pay an administrative penalty of $1 million and costs of $250,000, while the defendant directors were each ordered to pay a penalty of $500,000.

The sanctions decision raises a couple of points of particular interest. First, the decision considers the principle enunciated in Kienapple that an accused cannot be punished for more than one offence arising out of the same set of facts. While the principle has been applied in an administrative context in the past, the Commission in the immediate case raised doubt as to whether the principle would apply to an OSC proceeding. Regardless, the Commission found that the failure to issue and file a news release  in respect of a material change in this case was a distinct offence from the failure to file a material change report in respect of the same material change. As such, the Commission's opinion on the applicability of Kienapple was not determinative.

Further, the decision discusses Staff's request that the Commission issue an order preventing the director defendants from seeking or accepting indemnification from Coventree for any penalty imposed. The Commission ultimately found that it lacked the authority to make such an order. In the Commission's view, however, there would be nothing preventing Staff from negotiating a provision in a settlement agreement limiting a director or officer from seeking such indemnification.

Quebec's Complaint Reporting System - Reminder of semi-annual filings for registrants in Quebec

Alix d’Anglejan-Chatillon

Québec’s financial services regulator, the Autorité des marchés financiers (AMF), has issued a reminder that firms registered or otherwise licensed by the AMF in Québec, including as securities dealers or advisers, must file their semi-annual report of client complaints on the AMF’s Complaint Reporting System (CRS) by January 30 covering the period of July 1 to December 31.  The next semi-annual filing must be completed no later than July 30 for the January 1-June 30 period.

These semi-annual filings must be completed electronically on the AMF’s CRS. For information on obtaining a CRS user code to access the system and other information on applicable requirements governing the fair and equitable handling of complaints under the Quebec rules, please refer to the CRS link above. 

Continuous Disclosure Guide - 2012

Over the past year, regulators have issued a number of notices providing guidance and suggested best practices relevant to continuous disclosure, most notably relating to amendments to executive compensation disclosure. Meanwhile, groups such as the Canadian Coalition for Good Governance and ISS have also released model policies and guidance on such topics as proxy circular disclosure and majority voting. We have created this 2012 Canadian Public Company Disclosure Reference Guide to assist you in preparing your 2011 annual disclosure, including financial statements, MD&A, AIFs and information circulars. This guide sets out the main sources of the disclosure requirements along with relevant guidance, best practices and policies, as applicable.

Continue Reading...

CSA revise guidance on oil and gas disclosure

On December 29, 2011, the Canadian Securities Administrators published a revised version of CSA Staff Notice 51-327, which provides guidance on compliance with oil and gas disclosure requirements. The recent revisions to the notice include: (i) new guidance on the general responsibilities regarding the formulation of oil and gas disclosure information; (ii) new guidance regarding the disclosure of after-tax net present value of future net revenue, well-flow test results, and the use of Barrels of Oil Equivalents; and (iii) expanded guidance on the evaluation, classification and disclosure of unconventional hydrocarbons. The revisions were made in light of recent amendments to NI 51-101 Standards of Disclosure for Oil and Gas Activities and are intended to re-emphasize or expand guidance on some of the issues discussed in previous versions of the notice.

Exemption from transparency requirements for government debt securities extended

The Ontario Securities Commission has extended the existing exemption from the transparency requirements for government debt securities, found in section 8.6 of NI 21-101 Marketplace Operation, until December 31, 2014. The exemption, whose extension was first proposed in October, was set to expire at the end of this year. For more information, see OSC Rule 21-501.

BCSC expands exemptions to new private placement disclosure requirements

Ramandeep Grewal -

The British Columbia Securities Commission has now replaced BC Instrument 45-533, which granted limited relief from its new private placement disclosure form (Form 45-106F6 or the "BC Form") with a new version of the Instrument. As we've discussed in earlier posts, private placements in British Columbia have been subject to expanded post-trade disclosure requirements since October 3rd. The new version of the Instrument expands on the range of circumstances under which an issuer or underwriter can avoid having to file Form 45-106F6. Exemptions from certain parts of the BC Form are also provided.

Specifically, all investment funds (not just those managed by a Canadian registered manager) are now exempt from filing the BC Form (and can instead file a Form 45-106F1 or the "National Form"). Issuers or underwriters distributing securities of a non-reporting issuer only to permitted clients (as defined in NI 31-103) are also exempt from filing the BC Form provided they file the National Form and provide notice of their reliance on the filing exemption. Meanwhile, foreign public issuers and their subsidiaries, as well as subsidiaries of reporting issuers, are now exempt from having to provide information in item 4 of the BC Form (which is the item that requires detailed information about insiders and their holdings). Further, "insider information" under item 4 will now only be required for directors, executive officers, promoters and control persons.

The new Instrument came into force on December 9, 2011.

ASC corporate finance disclosure reviews result in IFRS-related refilings

The Alberta Securities Commission recently released its annual Corporate Finance Disclosure Report for 2011, which sets out the results of its continuous disclosure reviews for the past fiscal year. In addition to performing full continuous disclosure reviews, the ASC also conducted issue-oriented reviews focused on the first quarter interim filings of reporting issuers that transitioned to IFRS.

Ultimately, the report highlights recurring issues found in reporting issuers' disclosure, including such things as gaps in financial statements relating to reverse takeover transactions, deficiencies in the disclosure of risk factors and assumptions used to develop forward looking information, and insufficient environmental disclosure.

While the ASC stated that it was generally satisfied with the results of its IFRS-focused reviews, the report cited a slight increase in the amount of refilings requested (from 14% to 16% of issuers reviewed). Notably, the proportion of financial statement refilings increased significantly, from 17% of refilings to 43%. Issues that the ASC observed included missing financial statements, unclear transition impact, boilerplate accounting policy disclosure and lack of identification of IFRS 1 exemptions taken. The report also provides practice tips and examples of disclosure for the benefit of reporting issuers preparing to file their first annual IFRS financial statements.

Finally, the report also reviews disclosure made in offering documents filed by reporting issuers where Alberta is the principal regulator. Deficiencies found in such documents included insufficient disclosure regarding use of proceeds and oil and gas activities.

TSX provides guidance on news dissemination

The Toronto Stock Exchange released guidance this week, in the latest issue of its Issuer Update publication, intended to clarify the process for disseminating information through news releases. Different procedures exist depending on the time of day the news release is disseminated and whether the release contains material information. For the sake of clarity, we've reproduced the TSX's chart, below:
 

 

Disseminating Information Before 8 a.m. or after 5 p.m. (ET)

Disseminating Information Between 8 a.m. and 5 p.m. (ET)

Material information

Distribute the news release through approved news wire service and copy IIROC at the time the release is sent to the wire. As a courtesy, call IIROC to advise that a material release has been disseminated.

Pre-file the news release with IIROC and obtain IIROC’s sign off before distributing the news release through an approved news wire service.

No material information

Distribute the news release (approved news wire service not required) and copy IIROC at the time the release is sent to the wire.

Distribute the news release (approved news wire service not required) and copy IIROC at the time the release is sent to the wire.


According to the TSX, requirements for TSX Venture Exchange issuers will be addressed in the next issue of Issuer Update.

CSA seek to improve consistency of scholarship plan prospectus disclosure

Late last week, the Canadian Securities Administrators published an amended prospectus form for scholarship plans intended to better reflect the unique features of such plans. Scholarship plans are currently afforded the flexibility to modify Form 41-101F2 to reflect plans' specific features, which the CSA state leads to information being disclosed in an inconsistent manner. According to the CSA's notice, the new Form 41-101F3 would provide "more understandable and effective disclosure for investors".

The CSA published an earlier version of the amendments in March 2010 and the latest proposals reflect the CSA's responses to comments received. Comments on these recently released proposals are being accepted until January 24, 2012.

SEC releases guidance for the disclosure of cybersecurity incidents

In the wake of a number of high-profile cybersecurity incidents, the SEC’s Division of Corporation Finance recently released disclosure guidance on the topic of cybersecurity. While the guidance creates no new legal obligations, it is intended to provide clarity regarding the forms of disclosure that registrants may have to make. In the release, the Division of Corporation Finance recognized that while no current disclosure requirements explicitly refer to cybersecurity, there are a number of existing disclosure obligations that may require registrants to disclose cybersecurity risks or incidents.

Such cyber incidents may be deliberate or unintentional, and include gaining unauthorized access to digital systems for the purpose of misappropriating assets or sensitive information, causing operational disruption or corrupting data. Meanwhile, the concept of a cyber attack also includes actions that don’t require unauthorized access to a computer system, such as denial-of-service attacks on websites. Cyber attacks may be carried out by insiders or third parties, and may use sophisticated technology to circumvent network security, or more traditional techniques like guessing or stealing a password to gain access to a computer network.

Continue Reading...

Canadian regulators update policy on electronic delivery

The Canadian Securities Administrators today announced the adoption of changes to National Policy 11-201 Delivery of Documents by Electronic Means. The revised policy clarifies that, subject to electronic commerce and other legislation, delivery requirements of securities legislation can generally be satisfied through electronic delivery if:

  • the receipt of the document has notice of electronic delivery and easy access to the document being delivered;
  • the document received is the same as the document delivered; and
  • the deliverer has evidence of delivery.

The Policy provides further guidance on how each of these elements can be satisfied. While express consent is not required for effective delivery under the Policy, CSA staff clarify that express consent may assist in achieving the key components identified above and note that it may still be required under electronic commerce legislation.

The Policy has been amended to reflect various developments that have taken place since it was first implemented in 2000. These include changes to e-commerce and corporate legislation, the introduction of legislation governing electronic transactions and protection of personal information and the general proliferation of electronic communications. The amendments, published in draft form in April, are intended to simplify guidance on the form and substance of securityholder consents, reduce technology-related references that may become obsolete and alert stakeholders to other legislation addressing the electronic delivery of documents. As the CSA does not consider its revisions to the proposed amendments to be material, no comment period will be provided and the amendments come into effect today.

ISS releases 2012 proxy voting policies

Institutional Shareholder Services yesterday released updates to its proxy voting guidelines for 2012. As we discussed in October, draft updates were published last month.

The final version of the guidelines for TSX-listed companies includes updates on ISS' policies with respect to voting on director nominees in uncontested elections to add an explicit reference to risk oversight in the rationale for the voting recommendation. According to ISS, the intention is not to penalize boards for taking prudent business risks or for exhibiting reasonable risk appetite but, rather, to address situations where there has been a material failure in a board's role in overseeing the company's risk management practices.

Further, its policy on employee stock purchase plans has also been updated by increasing the acceptable allowable employer matching contribution to 25% of the employee contribution, deleting the offering period requirement and adding key factors to be considered, such as other compensation plans (including pension plans) and eligibility and administration, in determining whether to vote for or against the purchase plan.

Meanwhile, the U.S. policies have been updated by, among other things, refining the methodology of evaluating executive pay-for-performance. As we discussed in our blog post October 28, ISS has stated that the new methodology is being considered for Canada.

The new guidelines are effective for meetings on or after February 1, 2012.

Bottom lines benefit when social reporting is embraced

Edward Waitzer -

Canadian companies must embrace social reporting to remain competitive.

Analysts are giving more positive recommendations to firms that score higher and report on environmental, social and governance measures, recent research from the London Business School and Harvard Business School shows. And those that adopt mandatory sustainability reporting requirements have seen positive effects on corporate performance.

This makes sense: Disclosure of that kind of information creates incentives for companies to manage such issues more effectively, even if only to avoid having to disclose bad performance to their stakeholders.

Continue Reading...

OSC finds Coventree ABCP disclosure deficient

Sean Vanderpol and Alex Colangelo -

On September 28, the Ontario Securities Commission (OSC) released its decision in the case against Coventree Inc. Coventree, an investment bank specializing in structured finance, was the largest third-party sponsor of asset-backed commercial paper (ABCP) in Canada. OSC staff had alleged, among other things, that Coventree failed to disclose material facts in its prospectus of November 2006, and also failed to disclose material changes regarding subsequent developments in the subprime market.

Ultimately, the OSC found that while Coventree did not breach disclosure requirements with respect to its prospectus, the company did fail to disclose material changes to its business that occurred in early 2007 and during the August 2007 disruption in the ABCP market. Particular points of interest in the decision include the OSC’s discussion of materiality, the use of prospectus disclosure as a baseline for assessing the materiality of future events and the distinction made between a change in the price of a security and a change in the value of a security.

Continue Reading...

SEC adopts confidential private fund risk reporting

Late last month, the U.S. SEC adopted a new rule to require registered investment advisers with at least $150 million in private fund assets under management to periodically file the new Form PF. The amount of information to be reported will depend on whether an adviser belongs to the "large adviser" or "small adviser" cateogry. The latter group, under which the SEC anticipates most advisers will fall, will have to file Form PF once per year. Only basic information regarding such things as size, leverage, investor types and concentration will be required. Large advisers will potentially report on a more frequent basis depending on whether they are a hedge fund, private equity fund or liquidity fund adviser, and will have to include more detailed information.

Meanwhile, commodity pool operators and commodity trading advisers that are dually registered with the CFTC will be able to satisfy certain CFTC filing requirements with respect to private funds, should the CFTC adopt such requirements, by filing the new reporting form with the SEC.

The new requirements represent another step in the implementation of Dodd-Frank.  Most private fund advisers will be required to begin reporting following the end of their first fiscal year or quarter to end on or after December 15, 2012. However, certain advisers with at least $5 billion of assets under management will have to begin reporting following the end of their first fiscal year or quarter ending on or after June 15, 2012. Rules requiring the registration of private fund advisers were adopted by the SEC this past June.

FINRA proposes requiring further disclosure of private placement proceeds

Last week, the U.S. Financial Industry Regulatory Authority published proposed amendments to its rules that would require its members and associated persons that offer or sell private placements, as well as those that participate in the preparation of private placement memoranda, term sheets or other related disclosure documents in connection with a private placement, to provide disclosure to investors regarding the anticipated use of the offering proceeds prior to sale. The disclosure to investors would also have to include information regarding the amount and type of offering expenses, as well as the amount and type of compensation provided to sponsors, consultants and members in connection with the offering.

The disclosure documentation would have to be filed with FINRA within 15 days of the first sale. Certain offerings, however, would be exempted from the new requirements, including those sold solely to qualified purchasers, qualified institutional buyers and investment companies, meeting the applicable statutory definitions. According to FINRA, its proposals will "provide important investor protections in connection with private placements without unduly restricting capital formation through the private placement offering process" while also assisting in efforts to "identify problematic terms and conditions in private placements, thereby helping to detect and prevent fraud in connection with private placements."

Comments on the proposals are being accepted for 21 days from the date of publication in the Federal Register.

CSA's proposed venture regime seeks to tailor regulation

Tim McCormick -

The Canadian Securities Administrators (CSA) have introduced a new mandatory regulatory regime for venture issuers intended to provide a more tailored approach to the regulation of the venture market.  As discussed in an earlier blog post, on July 29, the CSA published for comment proposed rules and rule amendments in the form of Proposed National Instrument 51-103 Ongoing Governance and Disclosure Requirements for Venture Issuers (NI 51-103), which represents a comprehensive overhaul of the prospectus and private placement requirements, as well as continuous disclosure and governance obligations currently applicable to venture issuers.

The CSA’s proposals are ultimately intended to streamline venture issuer disclosure to reflect the needs of investors, while making disclosure requirements more suitable and manageable for issuers.  The highlights of the proposals include replacing all current continuous disclosure and governance requirements (including audit committee and certification requirements) and modifying disclosure requirements in connection with long form prospectus offerings and rules for incorporation by reference in short form prospectuses and other documents. The proposals also introduce substantive corporate governance requirements relating to conflicts of interest, related party transactions and insider trading and propose to require delivery of disclosure documents on request only in lieu of mandatory delivery.  Some of these changes are discussed in detail below.

Continue Reading...

BCSC grants limited relief from its new private placement disclosure form

As we discussed last September, this past August and earlier this week, private placements in British Columbia will soon be subject to expanded post-trade disclosure requirements. The requirements to be imposed on foreign issuers and Canadian private issuers were expected to have a chilling effect on private placements into the province as detailed in our previous posts. The new requirements, found in Form 45-106F6, are set to come into force on October 3rd.

Earlier today, however, the BCSC issued an order exempting investment funds from the requirement to file the new Form 45-106F6, provided that a Form 45-106F1 is filed. Form 45-106F1 is the current form required to be filed in a Canadian jurisdiction under NI 45-106 Prospectus and Registration Exemptions.

Meanwhile, issuers and underwriters filing the report in respect of private placements by certain foreign public issuers (defined to include issuers subject to prescribed reporting requirements in the U.S. and certain other designated jurisdictions) will now be exempt from Item 4 of the new report, being the requirement to provide information regarding the securities beneficially owned or controlled by their insiders and promoters. The designated jurisdictions are Australia, France, Germany, Hong Kong, Italy, Japan, Mexico, the Netherlands, New Zealand, Singapore, South Africa, Spain, Sweden, Switzerland and the U.K. While the order provides relief from Item 4 in respect of these designated foreign public issuers, they must still file the report in compliance with the remaining provisions. No relief was extended to Canadian private companies.

The BCSC also concurrently published an order exempting representatives of the media from the prohibition against using information contained in Schedule I of the report provided they only disclose the information for journalistic purposes. The information contained in Schedule I includes the name of individual purchasers, the number and type of securities they purchased and price paid, the date of distribution and indication of whether the purchaser is an insider or a registrant.

Expanded disclosure requirements in BC could have chilling effect on private placements

As we discussed in a blog post of August 16, the British Columbia Securities Commission recently announced that, effective October 3, 2011, exempt distributions (private placements) in British Columbia will be subject to expanded post-trade disclosure requirements. These new rules are expected to have a chilling effect on private placements into British Columbia, particularly by foreign public companies and investment funds, and other issuers that are not “reporting issuers” (public companies) in Canada.

While issuers making an exempt distribution in B.C. will generally be required to file the new Form 45-106F6 (in addition to filing a Form 45-106F1 in other Canadian jurisdictions, as applicable), issuers that are not reporting issuers in any jurisdiction of Canada will have to comply with more onerous requirements. As we mentioned in our earlier blog post, however, an exempt distribution report on the new Form and on Form 45-106F1 will only be required for distributions effected pursuant to prescribed prospectus exemptions. The practical feasibility of collecting the required information and the fact that the additional information will be publicly accessible must be carefully considered by issuers before they decide to make a private placement in British Columbia.

Continue Reading...

TV ads raise concerns with regulatory staff

Staff of the Canadian Securities Administrators in Alberta, Ontario, Quebec, Nova Scotia, New Brunswick and the Northwest Territories published a notice yesterday setting out their concerns regarding the use of advertising that may attempt to promote an issuer's securities. While the notice applies to all types of media, CSA staff's concerns focus on the television ads used primarily by junior issuers that focus on the positive aspects of an issuer's business or its prospects. In the case of listed issuers, the stock symbol is prominently featured in the ads, whereas contact information is typically provided for investor inquiries for unlisted issuers.

According to CSA staff, such ads may fail to comply with disclosure requirements under securities legislation or may be misleading to investors. According to staff, such ads do not appear to be aimed at selling products or services or raising public awareness of the issuer but, rather, appear to try to promote interest in an issuer's securities. The notice, therefore, reminds issuers of the restrictions on advertising and marketing activities during a distribution or in furtherance of a distribution, as well as the additional disclosure restrictions and requirements applicable to mining and oil and gas projects.

Staff will continue to monitor advertisements by issuers going forward, and suggest that regulatory action could be taken should it appear that an advertisement is misleading to investors or contrary to the public interest.

For more information, see CSA Staff Notice 51-336 Issuers using Mass Advertising.

TSX and TSX-V now using harmonized PIF and Declaration

On September 9, the Toronto Stock Exchange announced the adoption of amendments to its Company Manual to create a harmonized Personal Information Form and a harmonized Declaration to be used by it and the TSX Venture Exchange. Changes to the forms are not considered material, and consist of minor drafting changes. The amendments have been approved by the OSC and came into force on September 9.

The TSX will, however, continue to accept PIFs and Declarations in the previous form until December 31, 2011, provided that all of the required information, identification and notarization are included. After that date, the new forms will be required.

British Columbia to require more disclosure on private placement purchasers

Kathleen G. Ward, Keith R. Chatwin, John F. Anderson and Ramandeep Grewal

On August 11, the British Columbia Securities Commission (BCSC) published advanced notice that effective October 3, 2011, it will require expanded disclosure about purchasers purchasing securities in the exempt market. Breaking with its counterparts in other Canadian jurisdictions, the BCSC has determined that the need for increased disclosure about the exempt market in British Columbia warrants a “local response.” The BCSC has therefore adopted a new Form 45-106F6 (BC Form) as its own form of report for certain prospectus exempt distributions (private placements) in British Columbia in lieu of the existing form used in all other Canadian jurisdictions (Form 45-106F1).

The BC Form expands the disclosure that is required under Form 45-106F1 in a number of ways.

Continue Reading...

CSA propose streamlined venture issuer disclosure

The Canadian Securities Administrators today published for comment proposals intended to "streamline and tailor venture issuer disclosure" to reflect the expectations of investors and to improve the manageability of disclosure requirements for issuers.

The CSA's proposals follow a consultation last year by various provincial regulators on tailoring venture issuer regulation, and would replace the governance, disclosure and certification obligations of venture issuers currently found in NI 51-102 Continuous Disclosure Obligations, NI 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings, NI 52-110 Audit Committees and NI 58-101 Disclosure of Corporate Governance Practices with a new National Instrument 51-103 Ongoing Governance and Disclosure Requirements for Venture Issuers.

Among other things, the CSA's proposals would (i) consolidate business, governance and executive compensation disclosure, audited annual financial statements, associated MD&A and CEO/CFO certifications into one document and make modifications to current governance and continuous disclosure requirements; (ii) modify the disclosure obligations of venture issuers in connection with a long form prospectus; and (iii) modify the documents required to be incorporated by reference in the case of a short form prospectus, qualifying issuer OM and the TSX short form offering document.

The CSA also provided a number of questions for commentators to consider in reviewing the proposal and is accepting submissions until October 27.

OSC Staff publish guidance on disclosure of mineral brine projects

OSC Staff published guidance last week on the application of NI 43-101 Standards of Disclosure of Mineral Projects to issuers with mineral brine projects. Among other things, the guidance provides the OSC Corporate Finance Branch Staff's view that mineral brine projects fall under the definition of "mineral project" under NI 43-101. The notice also considers the particular issues to be considered when preparing scientific or technical disclosure in respect of a mineral brine project. For more information, see OSC Staff Notice 43-704.

Previously proposed executive compensation disclosure changes finalized

The Canadian Securities Administrators (CSA) announced today that they are adopting amendments to Form 51-102F6 Statement of Executive Compensation effective for financial years ending on or after October 31, 2011. As we discussed in a previous post, proposed amendments were initially published in November and followed a CSA review dating from November 2009 that assessed compliance with executive compensation disclosure requirements.

The CSA revisions to the November proposals, made in response to comments received, are not considered material and, thus, will not be open for further comment.

CSA release results of CD review program for fiscal 2011

The Canadian Securities Administrators today released a notice summarizing the results of their continuous disclosure review program for fiscal 2011. The CSA ultimately reviewed the disclosure of 1,351 issuers, consisting of 436 full reviews and 915 issue-oriented reviews (which focused on such issues as IFRS transition disclosure, certification and disclosure of material contracts). The reviews resulted in 70% of issuers reviewed being required to take some action to improve disclosure, with 16% being required to amend and refile certain continuous disclosure documents and 40% requiring changes or enhancements in their next filings.

Common deficiencies identified by the CSA's review included boilerplate disclosure in MD&A that lacked analysis, insufficient financial statements disclosure relating to note disclosure and measurement issues, and insufficient disclosure of executive compensation information. Of particular interest, the CSA's notice provides guidance addressing identified deficiencies and provides examples of more robust disclosure.

For fiscal 2012, the CSA stated that their main focus will be on IFRS transtion disclosure.

ASC generally satisfied with oil and gas disclosure

The Alberta Securities Commission recently released its 2010 Oil and Gas Review, a report that contains the ASC's observations on the oil and gas disclosures of Alberta reporting issuers. While the report identifies a number of deficiencies (such as with respect to the disclosure of resources other than reserves data, the disclosure of costs incurred regarding acquisitions, exploration and development, and improper use of cautionary statements), the ASC ultimately found itself "generally satisfied" with the state of disclosure by issuers. The report also provides guidance on a number of disclosure issues, considers recent amendments to NI 51-101 Standards of Disclosure for Oil and Gas Activities and reviews international policy developments respecting oil and gas disclosure rules.

New version of NI 43-101 effective today

Raymond McDougall

As we recently discussed, in April 2010, the Canadian Securities Administrators issued for comment proposed amendments to National Instrument 43-101 Standards of Disclosure for Mineral Projects.  Following a comment period, the CSA made few minor changes to its proposals and finalized amendments to NI 43-101, Form 43-101F1 and Companion Policy 43-101CP, which come into force today. Of particular interest, there are a few items to highlight in connection with the coming into force of the new instrument.

Continue Reading...

CSA discuss compliance expectations for EMD registrants

The CSA issued a staff notice earlier this week dealing with the account statement requirements under National Instrument 31-103 Registration Requirements and Exemptions. Specifically, the notice considers the CSA's expectations for exempt market dealers' compliance with account statement requirements in NI 31-103, notes that the CSA will focus attention on EMDs distributing securities of related or connected issuers and draws attention to CSA guidance on the valuation of securities. For more information, see CSA Staff Notice 31-324.

CSA request comments on cost disclosure and performance reporting

As part of its Client Relationship Model Project, the CSA has recently published proposed amendments to National Instrument 31-103 Registration Requirements and Exemptions intended to ensure that investors are provided with key information about their account and product-related charges. Under the proposed amendments, registered firms would be required to provide clients with: (i) an annual summary of account-related and product charges; (ii) the original cost of each security added to account statements; and (iii) annual account performance reporting. Annual account performance reporting would include disclosure of net amount invested, change in value, percentage returns and a description of the use and limitations of benchmarks. According to the notice, most of the new requirements would be phased in over two years following their implementation. The CSA is accepting comments on the proposals until September 23, 2011.

Ontario approves changes to mining disclosure requirements

The Ontario Minister of Finance has now approved amendments to National Instrument 43-101 Standards of Disclosure for Mineral Projects. As we discussed in April, the changes are generally intended to increase the effectiveness of mining disclosure rules by eliminating or reducing the scope of various requirements and providing increased flexibility to mining issuers and qualified persons in certain areas. The amendments are scheduled to come into force on June 30.

AMF releases draft regulations under Money-Services Businesses Act

The Autorité des marchés financiers last week published for comment draft regulations and a policy statement related to the Money-Services Businesses Act. Specifically, the AMF released draft versions of (i) Regulation under the Money-Services Businesses Act, which sets out general obligations and licensing requirements under the Act; (ii) Regulation respecting Fees and Tariffs, which stipulates the fees applicable to money-services businesses; and (iii) Policy Statement to the Money-Services Businesses Act, which sets out how the AMF interprets and intends to apply the provisions of the Act.

The Act, scheduled to come into force in 2012, will require that persons operating a "money-services business" for compensation obtain a license from the AMF and disclose information about their directors, officers, partners, shareholders, branch managers, employees working in Quebec and certain types of lenders with whom they deal. For further background on the definition of "money services business" and scope of application of the Act, see our posts of November 12 and December 17, 2010.

CSA propose rule to regulate OTC issuer disclosure

Late last week, the Canadian Securities Administrators, other than the OSC, released for comment a proposed multilateral instrument that would essentially apply continuous disclosure requirements to OTC issuers that have a significant connection to a Canadian jurisdiction (including those that are already reporting issuers at the time the rule comes into force. An OTC issuer would be an issuer who has securities quoted on any U.S. OTC market, unless the issuer is also listed or quoted on another prescribed market. A significant connection would exist where (i) the OTC issuer's business was directed or administered in or from Canada; (ii)  promotional activities were conducted from Canada; or (iii) if the issuer distributed securities in Canada prior to obtaining a ticker symbol for the purpose of having its securities quoted on an OTC market in the U.S. and those securities became the issuer's OTC-quoted securities.

The rule is aimed at curbing the manufacture and sale in Canada of U.S. OTC quoted shell companies that can be used for abusive purposes. The BCSC adopted a similar rule back in 2008 which, according to the CSA notice, led to the migration of some OTC reporting issuers to other Canadian jurisdictions. In this respect, the proposed rule would also impose certain prohibitions and restrictions, including denying the use of certain exemptions, requiring that certain sales be made through registrants and imposing legend requirements.

Issuers subject to the instrument would generally have to comply with the continuous disclosure regime to which venture issuers are subject and, additionally, also file annual information forms (which venture issuers may do voluntarily, but are not required to). Once an issuer triggered the requirements, the OTC Rule would continue to apply for at least one year, continuing to apply after that time only if the issuer was directed or administered or carried out promotional activities in or from a Canadian jurisdiction. The CSA is accepting comments on the proposed instrument until September 9, 2011. For more information, see Proposed Multilateral Instrument 51-105 Issuers Quoted in the U.S. Over-the-Counter Markets.

OSC Corporate Finance Branch identifies IFRS filing deficiencies and publishes IFRS filing checklist

On May 19, the OSC's Corporate Finance Branch issued a notice identifying deficiencies found in issuers' first IFRS interim financial reports for the quarter ending March 31. Specifically, the notice discussed deficiencies related to missing IFRS 1 reconciliations, missing opening IFRS statements of financial position and missing statements of changes in equity. The OSC reminded issuers that internal control over financial reporting (ICFR) and disclosure controls and procedures (DC&P) should be robust enough to address the transition to IFRS and the notice stated that non-compliant issuers would be placed on a list of defaulting reporting issuers until deficiencies were remedied. Issuers with deficient disclosure will be expected to refile interim financial reports, along with revised CEO/CFO certificates.

To help issuers deal with some of these issues upfront, the Corporate Finance Branch issued a checklist earlier this week listing key elements of a first IFRS interim financial report (which is still relevant given the extended deadline for the first IFRS interim filing, which we discussed in our post of April 11). Tip sheets for issuers with year-ends of March 31, June 30 and September 30 are also available.

OSC finds non-compliance with interim financial statement disclosure requirements

The Ontario Securities Commission released a staff notice last week discussing its recent review of issuer compliance with section 4.3(3) of NI 51-102 Continuous Disclosure Obligations. The applicable provision requires that issuers disclose if an auditor has not reviewed an interim financial report. According to the staff notice, the OSC found a "significant level" of non-compliance with the disclosure requirement, in that many issuers failed to disclose that interim statements had not been reviewed, which has led to requests for refilling of interim financial disclosure. While interim financial reports are not required to be reviewed by an auditor, the OSC reiterated that the required disclosure is "critical" as it "alerts investors...that the issuer's auditor did not complete a review of the interim financial report." According to the OSC, it will continue to monitor issuer compliance with this requirement. For more information, see OSC Staff Notice 51-718.

OSC's Investment Funds Practioner discusses issues in exemptive relief applications and public disclosure filings

The Ontario Securities Commission recently released the May 2011 issue of its Investment Funds Practitioner. The publication discusses various issues arising out of the OSC's review of the public disclosure documents and applications for exemptive relief filed by investment funds and provides the OSC's responses to the various matters.

Specifically, the OSC provides its views on, among other things, applications for exemptive relief from the requirement to calculate daily net asset value of an investment fund that uses specified derivatives (generally, the OSC believes that calculating NAV on a daily basis doesn't create a significant burden); whether the chief compliance officer of the manager is an "executive officer" for the purposes of requiring a PIF (the OSC answered this in the affirmative); and whether an issuer can make use of a short form prospectus for a subsequent offering within a year of filing a long form prospectus in connection with its IPO (the OSC provides that in such a case, a new fund's continuous disclosure record is not comprehensive enough).

Notably, the Practitioner also provides a number of frequently asked questions (and the OSC's response) regarding the newly-introduced requirements to produce and file Fund Facts documents. The FAQs review such issues as the transition period, filing fees, frequency of filing, the format of Fund Facts and disclosure of past performance.

FPIs not required to submit interactive data files until SEC specifies taxonomy

In response to a letter from the Center for Audit Quality, the U.S. Securities and Exchange Commission has stated that foreign private issuers that prepare financial statements in accordance with IFRS will not be required to submit, or post online, interactive data files (using XBRL), until the SEC specifies a taxonomy for use in preparing such interactive data files. For more on the SEC's requirements for Interactive Data Files, see our post of February 18, 2009.

CSA provide update on IFRS transition for investment funds

On April 12, the CSA published a notice regarding the adoption of IFRS by Canadian investment funds. As we discussed in a blog post of March 24, the CSA recently decided to delay the implementation of IFRS for investment funds to reflect the decision by the Canadian Accounting Standards Board to defer the transition to IFRS for investment companies to January 1, 2013.

In light of the delay by the IASB in publishing for comment a proposal to exempt investment companies from consolidating entities that they control, and the deferral of the IFRS transition date, CSA staff now intend to implement previously proposed IFRS-related amendments to National Instrument 81-106 Investment Fund Continuous Disclosure, subsequent to review and revision, prior to January 1, 2013.

CSA answer IFRS-related questions regarding accounting policies

Last week, the Canadian Securities Administrators (CSA) issued a Staff Notice in response to questions they have received regarding disclosure about accounting policies in issuers' interim and annual MD&A. While the CSA previously issued a staff notice addressing disclosure for periods preceding the changeover to IFRS, the current notice considers issues relating to the year of changeover.

Specifically, the notice considers Item 1.13(b) of Form 51-102F1 Management's Discussion & Analysis regarding the initial adoption of new accounting policies. The notice clarifies that while Item 1.13(b) of 51-102F1 does not apply to accounting policies initially adopted as a result of a changeover to IFRS, Item 1.13(b) applies to an issuer voluntarily changing accounting policies subsequent to filing the first interim financial report (other than due to the early adoption of a new or revised IFRS standard). Further, management may want to provide information regarding significant entity-specific features of the issuer's transition to IFRS.

The notice also states issuers should consider discussing "significant differences" between MD&A disclosure made prior to changeover to IFRS and information disclosed in the current period regarding accounting policy choices. According to the notice, issuers should also consider disclosing information pertaining to IFRS transition in one section of the MD&A and separately from the discussion of financial performance and financial condition.

For more information, see CSA Staff Notice 52-328.

Reminder regarding 30-day extension for first IFRS interim financial reports

Issuers filing their first IFRS interim financial report should keep in mind that the filing deadline has been extended by 30 days. This extension is available in respect of the first interim financial report required to be filed in the year of adopting IFRS provided that the issuer (i) is disclosing a statement of compliance with International Accounting Standard 34 Interim Financial Reporting for the first time, and (ii) has not previously filed financial statements that disclosed compliance with IFRS. The usual 45 and 60 day deadlines are consequently extended to 75 days for non-venture issuers and 90 days for venture issuers. This extension also applies to the corresponding MD&A required to be filed.

As such, non-venture issuers with a December 31st year-end will now have until June 14, 2011 to file their first IFRS interim financial report, while venture issuers will have until June 29. According to the OSC, the extension was made "to recognize the fact that the first IFRS interim financial report will be due shortly after the filing of the Canadian GAAP annual financial statements for fiscal 2010."

This extension has been added on a transitional basis to National Instrument 51-102 Continuous Disclosure Obligations in connection with the implementation of final amendments to NI 52-107 Acceptable Accounting Principles and Auditing Standards as discussed in our post on November 26, 2010.

CSA adopting amended mining disclosure instrument

On April 8, the Canadian Securities Administrators announced the adoption of final amendments to National Instrument 43-101 Standards of Disclosure for Mineral Projects, along with related amendments to various other instrument and forms. The CSA initially proposed changes to the instrument in April 2010 (see Ray McDougall's post on the proposals here) and the recently-published amendments reflect minor changes intended to clarify the initial proposals.

Generally, the changes are intended to make the mining disclosure rules more effective and cost-efficient without compromising investor protection. According to the CSA, among other things, the amendments eliminate or reduce the scope of various requirements, provide increased flexibility to mining issuers and qualified persons in certain areas and reflect changes that have occurred in the mining industry.

Assuming Ministerial approvals, the new instrument will come into force on June 30, 2011.

OSC releases review of investment fund disclosure related to IRCs

Earlier today, the Ontario Securities Commission released the findings of its disclosure review related to National Instrument 81-107 Independent Review Committee for Investment Funds. NI 81-107 requires that an investment fund that is a reporting issuer have an independent review committee (IRC) to oversee decisions involving conflicts of interest faced by the fund manager in the operation of the fund. The OSC's review was primarily intended to assess the concerns expressed by the funds industry regarding the implementation of NI 81-107.

Ultimately, the OSC's review made three main findings: (i) IRC fees, which the OSC found range between 0.000033% and 0.27% of a fund's total net assets, represent a "minimal portion" of such assets; (ii) all funds reviewed were able to create and retain an IRC under the rule; and (iii) standing instructions on conflict of interest matters enable the fund manager to effectively manage fund operations. The OSC also identified one "recurring disclosure deficiency of significance", being that some funds failed to disclose IRC fees as a separate line item in financial statements as required by NI 81-106.

Going forward, OSC Staff expect to continue to inquire about the process and criteria used by IRCs to arrive at positive recommendations or approvals of conflict of interest matters. According to the OSC, in such cases, Staff may request the minutes of an IRC's discussion or ask to speak with the IRC or the IRC Chair to discuss a specific matter. OSC Staff will also continue to consider new applications for exemptive relief from the legislated conflict of interest prohibitions in cases where fund managers demonstrate a compelling need or market necessity for the relief. To that end, fund managers were encouraged in the OSC's notice to contact the OSC before proceeding with exemptive relief applications not previously granted and beyond the scope of exemptions codified under NI 81-107. For more information, see OSC Staff Notice 81-713.

CSA further delay implementation of IFRS for investment funds

The Canadian Securities Administrators yesterday released an updated version of Staff Notice 81-320, first published on October 8, 2010, regarding the adoption of IFRS by investment funds (as defined in securities legislation and subject to National Instrument 81-106 Investment Fund Continuous Disclosure) in Canada. The revised version of the notice reflects the recent decision by the Canadian Accounting Standards Board to further defer the transition to IFRS for investment companies to January 1, 2013. In the meantime, investment funds are expected to continue to provide appropriate disclosure about the anticipated impact of the changeover to IFRS in accordance to the guidance provided in Staff Notice 52-320.

SEC proposes prohibition of risky incentive-based compensation arrangements

On March 2, the U.S. Securities and Exchange Commission proposed a rule that would prohibit certain institutions with consolidated assets of $1 billion or more from establishing or maintaining incentive-based compensation arrangements that encourage executive officers, employees, directors or principal shareholders to expose the institution to inappropriate risks by providing excessive compensation, or that encourage inappropriate risks that could lead to material financial loss. The proposals would apply to institutions with consolidated assets of $1 billion or more and include brokers and dealers registered under Section 15 of the Securities Exchange Act of 1934 and investment advisers as defined under section 202(a)(11) of the Investment Advisers Act of 1940.

The proposal, which responds to a requirement by Dodd-Frank to prohibit such compensation arrangements, would also require the covered institutions to disclose information about their incentive-based compensation arrangements. The proposal will be open for a 45-day comment period once it is published in the Federal Register.

OSC staff provides views of investment fund prospectus disclosure

The OSC released a notice today setting out the views of OSC Staff on the disclosure required by investment funds that use Form 41-101F2 (pre-IFRS version, IFRS version) when filing prospectuses. The notice addresses Staff's concerns regarding investment funds departing from the form's general requirements relating to the use of plain language, brevity and the ordering of information and use of headings.

First, in Staff's view, cover page and prospectus summary disclosure tends to be overly detailed, in contrast to Staff's expectations that it include a brief description of the investment fund and the securities to be distributed. As such, Staff specifically request that cover page disclosure be limited to the disclosure specifically mandated by the form, while prospectus summary disclosure generally only provide a brief summary of information that appears elsewhere in the prospectus.

On the other hand, with respect to disclosure about investment objectives, OSC Staff expressed concern regarding the limited nature of disclosure regarding the nature of the returns that the investment fund seeks to provide to investors. The notice specifically reminds filers to comply with all aspects of Item 5 of the form.

Finally, the notice describes the recent filing of prospectuses that combine disclosure for multiple ETFs in the same document. In response to this development, the notice states that the number of investment funds offered in a prospectus should be limited to investment funds with "substantially similar investment objectives, strategies and features." According to Staff, where the number of investment funds incorporated into one prospectus interferes with the presentation of key information in a clear, concise and comparable format, filers will be requested to separate the investment funds into different prospectus documents.

For more information, see OSC Staff Notice 81-714.

Continuous Disclosure Guide - 2011

Over the past year, regulators have issued a number of notices providing guidance and suggested best practices relevant to continuous disclosure, most notably relating to the transition to IFRS effective January 1, 2011. Meanwhile, groups such as the Canadian Coalition for Good Governance and ISS have also released model policies and guidance on such topics as executive and director compensation, proxy disclosure, "say on pay" and majority voting. We have created this 2011 Canadian Public Company Disclosure Reference Guide to assist you in preparing your 2010 annual disclosure, including financial statements, MD&A, AIFs and information circulars. This guide sets out the main sources of the disclosure requirements along with relevant guidance, best practices and policies, as applicable.

Continue Reading...

CSA provide revised guidance on reserves data disclosure

On December 24, 2010, the CSA published a revised version of CSA Staff Notice 51-327 Oil and Gas Disclosure: Resources other than Reserves Data, which provides guidance on the recurring issues identified in reporting issuers' disclosure of resources other than reserves data. A revised version of Staff Notice 51-324 Glossary to NI 51-101 Standards of Disclosure for Oil and Gas Activities, was also released.

For more information on oil and gas disclosure issues, see our post of October 22, 2010 discussing recent revisions to NI 51-101 and this post of March 26, 2009 discussing previous changes to Staff Notice 51-327.

SEC proposes disclosure rules for resource extraction issuers

The U.S. SEC proposed rules last week that would require domestic and foreign issuers that must file annual reports with the SEC and that engage in the commercial development of oil, natural gas, or minerals, to disclose certain payments made to the U.S. and foreign governments. The types of payments that would have to be disclosed include taxes, royalties, fees and bonuses. The proposed rules stem from Dodd-Frank amendments to the Securities Exchange Act of 1934. The SEC is accepting comments on the proposed rules until January 31, 2011.

OSC Staff release findings of going concern disclosure review

Staff of the Ontario Securities Commission (OSC) released a notice this week summarizing their findings on the adequacy of disclosures in financial statements and MD&A related to the going concern assumption. Canadian GAAP requires management to assess an issuer’s ability to continue as a going concern, and where this assessment identifies material uncertainties that give rise to a going concern risk, ensure the risk is disclosed in the financial statements. Disclosure in the MD&A should then complement and expand upon the financial statement disclosure to provide a complete discussion of the uncertainties and the effect that they have on the issuers’ operations, liquidity and capital. Staff’s review included an assessment of the timeliness and adequacy of this required disclosure related to the going concern assumption. 

The OSC reviewed the disclosure of 105 issuers with indications of financial difficulty or that had recently ceased operations. As a result, the findings provide guidance on improving the quality and sufficiency of going concern disclosure. Generally, the OSC found that issuers with indications of financial difficulty where there was some going concern disclosure needed some improvement in their MD&A discussion related to going concern risk. Staff have also advised that disclosure of going concern risks will continue to be an area of focus in the future, resulting in refilings being required in appropriate circumstances.

For more information, see OSC Staff Notice 52-719.

Quebec adopts the Money-Services Businesses Act

Currency exchange and funds transfer businesses not otherwise regulated would be covered.

On December 10th, the Quebec government adopted Bill 128, An Act to enact the Money-Services Businesses Act and to amend various legislative provisions. As a result, the Money-Services Businesses Act (the MSB Act) will come into force on the date to be set by the government. The MSB Act requires that persons operating a "money-services business" for compensation obtain a license from Quebec’s financial markets authority, the Autorité des marchés financiers (the AMF), and disclose information about their directors, officers, partners, shareholders, branch managers and employees working in Quebec and certain types of lenders they deal with. Please refer to our post of November 12 for more details with respect to the MSB Act.

As noted in our post of November 12, the initial draft of the MSB Act provided that all license applications, together with the payment of prescribed fees, would need to be filed on behalf of the money-services business by a director, officer or partner that is either domiciled in Quebec or that has a place of business or a place of work in Quebec. As adopted, the MSB Act clarifies that money-services businesses that are not incorporated under Québec law and that do not have their head office or an establishment in Quebec can appoint a Quebec respondent for these purposes. The respondent does not need to be a director, officer or partner of the money-services business but must be in a position to adequately exercise its functions as a respondent vis-a-vis the AMF, and the money-services business must provide the respondent with the necessary information and documentation. 

The detailed initial registration and ongoing compliance requirements applicable to "money services businesses", including the qualifications and responsibilities of persons who could serve as respondents for purposes of registration under the MSB Act, have yet to be spelled out by regulation.

CCGG publishes 2010 proxy circular disclosure best practices

The Canadian Coalition for Good Governance yesterday released its 2010 Proxy Circular Disclosure Best Practices, a report that considers the specific matters that corporate disclosure should address and analyzes examples of actual company disclosure. While the report considers director-related disclosure, much of it focuses on executive compensation. On the latter topic, the CCGG states that compensation plans should be aligned with the Coalition's executive compensation principles, namely, that:

  1. "pay for performance" should be a large component of executive compensation;
  2. performance should be based on measurable, risk-adjusted criteria and evaluated over an appropriate time horizon, to ensure the criteria have been met;
  3. compensation should be simplified to focus on key measures of corporate performance;
  4. executives should build equity in the company, to align their interests with shareholders;
  5. companies should put appropriate limits on pensions, benefits, severance and change of control entitlements;
  6. effective succession planning helps to mitigate the need to pay for retention.

According to the CCGG, compensation plan disclosure should "clearly describe" how the plan is linked to the company's strategy, objectives and risk management, and describe (among other things) the board's role in designing and determining executive compensation and key factors considered by the board. Numerous examples of executive compensation disclosure are also provided.

Minister of Finance approves implementation of "fund facts" disclosure

As we discussed in an earlier post, the CSA published amendments to National Instrument 81-101 Mutual Fund Prospectus Disclosure, its companion policy and related forms in October in furtherance of their project to implement point of sale disclosure for mutual funds. The Ontario Minister of Finance has now approved the amendments, with minor modifications, which will become effective on January 1, 2011.

The Minister also recently approved the IFRS-related amendments referred to in our post of October 1 (with minor modifications). Generally, the amendments affect continuous disclosure rules, prospectus rules, certification rules and registration materials and also come into force on January 1, 2011.

ASC "generally satisfied" with continuous disclosure

The Alberta Securities Commission recently released its Corporate Finance Disclosure Report for 2010, which reviews the findings from the ASC's review of reporting issuers' continuous disclosure. While the ASC stated that it was "generally satisfied" with the results of its review, the report identifies disclosure deficiencies and provides guidance to assist issuers in meeting requirements.

OSC publishes Top 10 Tips for IFRS filers

Earlier this week, the Ontario Securities Commission published an online guide to assist issuers in preparing their first IFRS interim financial report. The issues and tips reviewed in the guide include: (i) changes to acceptable accounting principles; (ii) discussion of a 30 day filing extension for an issuer's first IFRS interim report; (iii) the consequences of missing financial statement filing deadlines, which may include a cease trade order; (iv) suggested financial statement notes to include in the first IFRS interim financial report ; and (v) required reconciliations under IFRS 1, including an example of an equity reconciliation. According to the OSC, its goal in publishing the guide is "to help facilitate a smooth regulatory transition, which will benefit both issuers, their advisors and their investors".

As discussed in our post of October 1, the CSA have published final amendments to NI 52-107 Acceptable Accounting Principles and Auditing Standards and other related instruments and policies relating to the transition to IFRS for reporting issuers and registrants. These amendments take effect on January 1, 2011. The IFRS transition for investment funds, meanwhile, has been deferred for now, to January 1, 2012, as discussed in our post of October 8.

CSA propose amendments to executive compensation disclosure

The Canadian Securities Administrators (CSA) today published proposed amendments to Form 51-102F6 Statement of Executive Compensation  as well as related consequential amendments to NI 51-102 Continuous Disclosure Obligations and Forms 58-101F1 and 58-101F2 of National Instrument 58-101 Disclosure of Corporate Governance Practices. The proposed amendments will impact primarily upon the “compensation disclosure and analysis” or “CD&A” disclosure that was first introduced by the CSA effective December 31, 2008. The proposals stem from a combination of information gathered by the CSA through its targeted compliance review of executive compensation disclosure (as reported in CSA Staff Notice 51-331) and recent international developments, including new rules adopted by the Securities and Exchange Commission effective for the 2010 proxy season and those resulting from the Dodd-Frank Wall Street Reform and Consumer Protection Act that are expected to affect 2011 proxy disclosure. Some of the substantive changes proposed by the CSA include:

  1. where a company is relying on the exemption allowing it to withhold specific performance goals or similar conditions on the basis that disclosure would seriously prejudice its interests, requiring the company to explicitly state that it is relying on the exemption and explain why disclosure would so prejudice the company;
     
  2. requiring companies to disclose whether the board of directors considered the implications of the risks associated with the company's compensation policies and practices;
     
  3. requiring companies to disclose whether any named executive officer or director is permitted to purchase financial instruments designed to hedge their position in equities granted as compensation; and
     
  4. expanding current requirements to disclose fees paid to compensation advisors;

The CSA is accepting comments on the proposed amendments until February 17, 2011. If the proposed amendments are approved they are expected to be in effect for the 2012 proxy season, requiring companies to comply for financial years ending on or after October 31, 2011.

Quebec introduces money services business licensing legislation

Currency exchange and funds transfer businesses not otherwise regulated would be covered.

Alix d’Anglejan-Chatillon and Jason Streicher

On November 10, 2010, there was a first reading by Quebec's National Assembly of Bill 128, An Act to enact the Money-Services Businesses Act and to amend various legislative provisions mainly concerning special funds and the financial sector (Bill 128).

If adopted, Bill 128 would result in the enactment of the Money-Services Businesses Act (the MSB Act). The Québec government has stated that the oversight of money-services businesses is part of a broad offensive against tax evasion and money laundering. The MSB Act would require that persons operating a "money-services business" for compensation obtain a license from Quebec’s financial markets authority, the Autorité des marchés financiers (the AMF), and disclose information about their directors, officers, partners, shareholders, branch managers, employees working in Quebec and certain types of lenders they deal with. The term "money-services business" is not defined but the MSB Act would define "money services" to include currency exchange, funds transfer, the issue or redemption of travelers’ cheques, money orders or bank drafts, cheque cashing, or operating automated teller machines. If the lessor of a commercial space is responsible for keeping an automated teller machine supplied with cash, the lessor would also be subject to the licensing provisions of the MSB Act. 

Continue Reading...

CSA release environmental reporting guidance

The Canadian Securities Administrators released guidance this week to assist reporting issuers, other than investment funds, on continuous disclosure requirements relating to environmental matters. The notice is specifically intended to clarify existing disclosure obligations (rather than create new ones), including with respect to the determination of materiality, risk oversight and management and the impact of IFRS adoption. The guidance document also considers the various levels of oversight to which environmental disclosure is subject (by way of oversight of financial statements generally), namely the issuer's audit committee, board of directors and CEO and CFO. Of particular interest are the examples of specific disclosure included in the guidance.

Continue Reading...

SEC releases executive compensation proposals

The U.S. Securities and Exchange Commission (SEC) last week released a proposal that, among other things, would require issuers that are subject to federal proxy rules to conduct: (i) a shareholder advisory vote to approve the compensation of executives at least once every three years; (ii) a shareholder advisory vote on the frequency of executive compensation votes at least once every six years; and (iii) a shareholder advisory vote on golden parachute arrangements in connection with merger transactions. The SEC's proposal, which result from an amendment to the Securities Exchange Act of 1934 emanating from the recent Dodd-Frank Act, would also impose various disclosure requirements.

Meanwhile, further proposals would require institutional investment managers that manage certain equity securities having an aggregate fair market value of at least $100 million to annually report to the SEC on how they voted proxies relating to the matters described above, namely, executive compensation, the frequency of say-on-pay votes and "golden parachute" arrangements.

The SEC is accepting public comments on the proposals until November 18.

From guidance to law - amendments to NI 51-101 to codify prior guidance and supplement existing requirements

Keith Chatwin and Chris Scherman

You may recall our post of March 2009 commenting on Canadian Securities Administrators (CSA) Staff Notice 51-327 – Oil and Gas Disclosure: Resources other than Reserves Data (the Staff Notice). With the Staff Notice, the CSA were attempting to plug what had previously been a rather significant hole in the disclosure requirements mandated by National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51-101) by providing guidance on the disclosure of, among other things, standalone possible reserves, high, best and low case category estimates, the addition of resources across resource categories and other related topics.

Unfortunately, the CSA’s attempt to cut the flow of inadequate and potentially misleading resource reporting with the Staff Notice was unsuccessful. Misleading disclosure continues to pollute the capital markets and impair the ability of investors to compare issuers. As a result, the CSA took the next logical step by proposing amendments to NI 51-101 itself (the Amendments) on December 18, 2009 to codify the Staff Notice and make compliance mandatory, among other things.

Continue Reading...

CSA issue notice of amendments regarding standards of disclosure for oil and gas activities

On October 15, 2010, the Canadian Securities Administrators (CSA) issued a Notice of Amendments to National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51-101) and related and consequential amendments. NI 51-101 sets out annual filing requirements for reporting issuers who are involved in oil and gas activities and the disclosure standards applicable both to those annual filings and any other disclosures relating to their oil and gas activities. The stated purposes of the amendments are to clarify the standards of disclosure, codify existing staff guidance and practice, and add requirements to enhance reliability of certain disclosure of reserves and resources other than reserves. Each member of the CSA has made, or are expected to make, the amendments, which will come into force on December 30, 2010 provided that all requisite ministerial approvals are obtained.

Continue Reading...

CSA release findings of certification compliance review

The Canadian Securities Administrators (CSA) today released the findings of its Staff Review of compliance with National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings. Similar to the review of 2008 annual MD&A and CEO/CFO certifications conducted last year, this year's review was intended to evaluate the level of improvement in compliance with NI 52-109 and to raise awareness among issuers regarding their certification disclosure obligations. The notice also provides issuers with guidance in satisfying their compliance obligations.

Ultimately, the review's findings showed an improvement in the level of compliance compared to last year's review. Specifically, the percentage of issuers requested to re-file MD&A and certificates declined from 16% to 12%, while the percentage requested to re-file only certificates declined from 14% to 10%. Meanwhile, the percentage of issuers from whom no action was required increased from 38% to 45%.

Some of the deficiencies noted include issues with the content of CEO/CFO certifications, including related MD&A disclosure, problems with issuers who were required to re-filed interim or annual financial statements to correct accounting errors and MD&A disclosure relating to the impact of International Financial Reporting Standards (IFRS) on internal control over financial reporting and disclosure controls and procedures.

Going forward, the CSA state that they will continue to review issuers' compliance and will take action when deficiencies are identified. For a more comprehensive summary of the CSA's findings, see CSA Staff Notice 52-327 Certification Compliance Update.

CSA delay implementation of IFRS for investment funds

The Canadian Securities Administrators (CSA) published an update today regarding their plans for requiring adoption of IFRS by Canadian investment funds. As we discussed in October 2009, the CSA proposed amendments to NI 81-106 Investment Fund Continuous Disclosure last year that would have required investment funds to transition to IFRS by January 1, 2011. The Accounting Standards Board (AcSB) recently decided, however, to defer the mandatory IFRS changeover date for investment companies in order to give the International Accounting Standards Board time to implement a proposed exemption for investment companies from having to consolidate investments they control. As the CSA would prefer that the proposed IASB consolidation exemption be in place before requiring investment funds to transition to IFRS, the CSA intend to wait before seeking approval for, or republishing IFRS-related amendments to NI 81-106. The new goal for IFRS implementation for investment funds is now January 1, 2012.

See: CSA Staff Notice 81-320

BCSC adopts permanent self-dealing instrument

Back in January, we described a notice published by the British Columbia Securities Commission adopting an urgent rule regarding self-dealing. The urgent rule replaced the self-dealing provisions previously found in the Securities Act (British Columbia), which were repealed in September 2009. The BCSC has now published notice that it has adopted a permanent instrument, which makes minor changes to the urgent rules to take into account comments received.

See also:

BCN 2010/27 Notice of Adoption of BC Instrument 81-513 Self Dealing and related consequential amendments (Published September 24, 2010)
BC Instrument 81-513 Self Dealing (Published September 24, 2010)

BCN 2009/36 Notice of Adoption as an urgent rule, and of Publication for Comment, of BC Instrument 81-513 Self-Dealing and related consequential amendments (Published December 24, 2009)
BC Instrument 81-513 Self Dealing (Published December 24, 2009)

Insider reporting changes to affect filing deadline

As we discussed back in April, new harmonized insider reporting rules in Canada will soon result in an accelerated deadline for filing insider reports in respect of changes to previously reported holdings. Specifically, with respect to transactions occurring after October 31, 2010, an insider report will now have to be filed within five calendar days rather than the previous 10 day deadline. Thus, insiders should ensure that they are prepared to comply with this new requirement. Note, however, that initial reports will still be subject to a 10 day deadline.

For more information on the new insider reporting obligations generally, see our previous posts, below.

Preparing for Canada's new insider reporting requirements in force April 30, 2010 (Posted: April 21, 2010)
CSA publish insider reporting FAQ (Posted April 29, 2010)
CSA publish revised guidance respecting equity monetizations (Posted June 14, 2010)

SEC amends selective disclosure rules by removing credit rating agency exemption from Regulation FD

In accordance with the Dodd-Frank Wall Street Reform and Consumer Protection Act (the Dodd-Frank Act), the Securities and Exchange Commission (SEC) today published a final rule amending Regulation FD to remove the exemption previously available in respect of disclosure made to credit rating agencies.

In order to prevent selective disclosure, Regulation FD requires public disclosure of any material nonpublic information that is provided by an issuer or those acting on its behalf to certain enumerated persons, including securities market professionals. In order to implement Section 939B of the Dodd-Frank Act, Regulation FD is being amended to remove Rule 100(b)(2)(iii) of Regulation FD, which generally exempts issuers from having to make such disclosure if the material nonpublic information is provided to a credit rating agency under certain circumstances. Given the Dodd-Frank Act imposes a 90-day deadline for this amendment, the amendment will be effective for disclosure made on or after its publication in the Federal Register.

Continue Reading...

SEC proposes enhanced disclosure of short-term borrowings

Last week, the U.S. Securities and Exchange Commission (SEC) announced proposals intended to "shed a greater light" on the short-term borrowing practices of public companies. Specifically, the proposals would require all companies that provide MD&A disclosure to provide quantitative information regarding: (i) the amount of short-term borrowings outstanding at the end of the reporting period and the weighted average interest rate on those borrowings; (ii) the average amount outstanding during the period and the weighted average interest rate on those borrowings; and (iii) the maximum month-end amount of short term borrowings during the reporting period. With respect to the last requirement, financial companies would have to provide the maximum daily, rather than month-end, amount of short-term borrowings. Companies would also be required to provide quantitative information regarding the arrangements of their short-term borrowings.

Of particular note for Canadian companies, foreign private issuers, other than MJDS filers, would be subject to substantially similar requirements, but without the requirement for quarterly reporting. MJDS filers, however, would be unaffected by the proposals.

According to SEC Chairman Mary Schapiro, "[u]nder these proposed rules, investors would have better information about a company's financing activities during the course of a reporting period - not just a period-end snapshot." As such, investors "would be able to evaluate the company's ongoing liquidity and leverage risks." Comments on the proposals are being accepted by the SEC for 60 days after their publication in the Federal Register.

Alberta Securities Commission highlights Oil & Gas disclosure issues in 2009 Oil & Gas Review Report

The Alberta Securities Commission (ASC) has recently published its 2009 Oil & Gas Review Report dated July 2010. Designed to help issuers deal with oil and gas disclosure, the report also sets out the ASC’s expectations relating to mandated disclosure including information on the latest developments under National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities and key disclosure issues. Topics of discussion include general guidance on NI 51-101 (in areas such as owning a stake in another company, unique features of international properties, combining reserve estimates and errors in published disclosure), analysis of technical revisions of reserves, international policy developments and upcoming amendments to NI 51-101.

SEC approves changes to adviser principal disclosure brochure

Yesterday, the Securities and Exchange Commission (SEC) approved changes to Form ADV, the principal disclosure document that registered investment advisers are required to provide to clients. According to SEC Chairman Mary Schapiro, the current form's check-the-box formal "frequently does not correspond well to an adviser's business." As such, the changes are intended to improve the information available to clients regarding those providing them with investment advice. To that end, the format of the brochure will be updated to including narrative in plain English, the content will be expanded to include topics such as fees and compensation, an adviser's disciplinary information and brokerage practices and advisers will be required to deliver brochure supplements that contain "résumé-like disclosure" regarding such things as educational background and business experience. Advisers will also be required to electronically file brochures, which will be available to the public on the SEC's website.

The amendments will be effective 60 days after publication in the Federal Register and the SEC expects that investment advisers will begin distributing and posting new brochures in the first quarter of 2011.

SEC proposes mutual fund distribution fee regulations

The Securities and Exchange Commission (SEC) yesterday announced proposals intended to improve the regulation of mutual fund distribution fees and provide enhanced disclosure for investors. Distribution fees, also known as 12b-1 fees, are fees paid by the fund out of its assets to cover distribution costs and shareholder service expenses. The proposals would limit fund sales charges, improve the transparency of fees by requiring funds to identify and more clearly disclose distribution fees, encourage retail price competition and revise fund director oversight duties. The proposals will be open to a 90-day comment period after publication in the Federal Register.

CSA release report on continuous disclosure review

The Canadian Securities Administrators today released Staff Notice 51-332 - Continuous Disclosure Review Program Activities for the Fiscal Year Ended March 31, 2010. As the title of the notice implies, the report summarizes the results of the CSA's continuous disclosure review program of issuers (other than investment funds) for fiscal 2010.

During fiscal 2010, the CSA completed 527 full reviews and 824 issue-oriented reviews of issuers, selected generally from those at a higher risk of non-compliance. Ultimately, the CSA required 72% of issuers reviewed to take action to improve disclosure. Common deficiencies identified in the full reviews related to the disclosure of accounting policies and measurement issues, the generic nature of disclosure in the MD&A and the improper use of oil and gas terminology. Review outcomes included (i) requiring an issuer to make certain changes or enhancements in the next filing; (ii) educating the issuer with respect to disclosure enhancements; (iii) requiring the issuer to refile certain documents; and (iv) adding the issuer to the CSA's default lists, issuing a cease trade order or referring the issuer to enforcement.

For fiscal 2011, the CSA stated that issue-oriented reviews will focus on IFRS transition disclosure, material contracts, corporate governance and follow-up review of certification.

CSA provide update on mutual fund point of sale disclosure

Staff of the Canadian Securities Administrators (CSA) recently published a notice providing an update on the point of sale disclosure project for mutual funds. The update follows the CSA's consideration of comments to proposed amendments to National Instrument 81-101 Mutual Fund Prospectus Disclosure, which were published in June 2009. Despite some compliance concerns by commentators, the CSA made clear in the notice that they remain committed to implementing point of sale disclosure for mutual funds.

The CSA intend to proceed with a staged implementation of the project, which according to the notice, will provide the CSA "the opportunity to continue to consult with stakeholders and to consider the applicability of the point of sale regime for mutual funds to other types of publicly offered investment funds". Specifically, the CSA intend to proceed by first finalizing the requirements respecting the preparation and filing of a "Fund Facts" document, which would be posted on the mutual fund's or manager's website and provided to an investor upon request. The CSA expect to publish such requirements by December 2010, with an effective date in early 2011. Second, the CSA intend to publish for comment, in mid-2011, a proposal to allow delivery of the Fund Facts document to satisfy prospectus requirements to deliver a prospectus within two days of buying a mutual fund. While the CSA work on the proposal, they plan to consider applications for exemptive relief to use Fund Facts to satisfy current prospectus requirements. Finally, the CSA intend to publish requirements for point of sale delivery for mutual funds and possibly for other types of publicly offered investment funds once it has completed the review of relevant issues.

CSA Staff Notice 81-319 Status Report on the Implementation of Point of Sale Disclosure for Mutual Funds

Report concludes no new disclosure rules needed

The Hennick Centre for Business and Law and Jantzi-Sustainalytics released a report this week recommending that OSC Staff issue guidance clarifying the existing social disclosure and corporate social responsibility disclosure obligations in MD&A and AIF forms, particularly with respect to materiality. The report was prepared in response to a resolution passed by the Ontario Legislature calling on the OSC to conduct a consultation on corporate social responsibility and environmental, social and governance reporting standards.

Ultimately, the report recommended that, rather than adopting new rules, "the way forward should entail promotion of best practices within the existing regulatory framework". The OSC was also encouraged to "support a shift in the direction of more standardized metrics and reporting" and undertake periodic reviews to actively monitor disclosure trends and related internal controls.

For more on the report, see Janet McFarland's article from Tuesday's Globe and Mail.

CSA publish revised guidance respecting equity monetizations

On June 11, the Canadian Securities Administrators (CSA) published revised guidance relating to the reporting of certain derivative-based transactions, including equity monetizations, intended to "assist reporting insiders who have entered into such transactions and to promote consistency in filings." The notice provides examples of arrangements and transactions involving derivatives along with guidance as to how to report these arrangements and transactions on SEDI. A revised notice was also published by the CSA setting out questions and answers intended to assist users in filing information on SEDI. The Q&As are set out based on the steps in the SEDI filing process and the type of SEDI filer.

You may also want to see our previous post of April 21 regarding the newly-implemented insider reporting requirements and our post of April 29 regarding the CSA's FAQ on the new requirements.

GuidanceCSA Staff Notice 55-312 Insider Reporting Guidelines for Certain Derivative Transactions (Equity Monetization) (Revised)
Q&A
CSA Staff Notice 55-316 Questions and Answers on Insider Reporting and the System for Electronic Disclosure by Insiders (SEDI)

Rocks don't change but rules do

Proposed amendments to NI 43-101 Standards of Disclosure for Mineral Projects

Raymond McDougall

Following a substantive review of National Instrument 43-101 Standards of Disclosure for Mineral Projects (NI 43-101), the Canadian Securities Administrators (the CSA) have issued for comment an amended draft of NI 43-101 (Amended NI 43-101). Amended NI 43-101 does not alter any of the fundamental principles of NI 43-101, but it does contain a significant number of changes and many improvements.

Overview

In the spring of 2009, securities commissions in British Columbia, Ontario and Quebec conducted consultations with mining-industry participants, including issuers, advisors and professionals, as part of an ongoing review to improve and update NI 43-101. Through this process, and with additional input obtained by the commissions in Alberta and Saskatchewan, the CSA collected and considered various feedback and suggestions. Amended NI 43-101 represents the outcome of this process, together with the views and experiences of the CSA since the adoption of NI 43-101. The result includes many improvements that streamline and reduce certain specific regulatory burdens under NI 43-101 in a variety of contexts, including corporate finance and M&A transactions, particularly those involving parties from international jurisdictions. At the same time, Amended NI 43-101 introduces some new requirements, particularly by making changes to the technical report requirements.

Continue Reading...

IIROC provides guidance on insider and significant shareholder markers

The Investment Industry Regulatory Organization of Canada (IIROC) published a notice on April 28 providing guidance related to UMIR obligations to mark orders to purchase or sell securities for insiders or significant shareholders. The notice anticipates the upcoming implementation on April 30 of the new insider reporting regime and provides answers to frequently asked questions regarding the UMIR obligations. Questions considered include, among others: (i) whether every order for an insider of a particular security must contain a marker; (ii) when a participant can rely on "know your client" information to establish whether a marker is required; and (iii) whether a marked order can be bundled together with orders for those that are not reporting insiders.

CSA publish insider reporting FAQ

The Canadian Securities Administrators (CSA) yesterday published a staff notice addressing frequently asked questions regarding the new insider reporting regime under National Instrument 55-104 Insider Reporting Requirements and Exemptions. The notice contains examples of arrangements and transactions and corresponding guidance regarding the reporting of such arrangements and transactions. Specifically, the questions addressed include those with respect to (i) whether existing insiders have to file a new initial report; (ii) whether existing insiders who are not reporting insiders under NI 55-104 have to file anything to show their change in reporting status; (iii) exemptions for automatic securities purchase plans; and (iv) grants of related financial instruments.

The CSA also stated that it intends to shortly publish general guidance regarding: (i) reporting for certain derivative transactions and (ii) questions and answers on insider reporting and SEDI.

CSA publish proposed changes to mining disclosure

The Canadian Securities Administrators (CSA) today published proposed changes to National Instrument 43-101 Standards of Disclosure for Mineral Projects, its companion policy and Form 43-101F1 Technical Report, as well as related consequential amendments. The proposals are intended mainly to represent more effective and efficient disclosure and to reduce compliance costs. The proposed changes include eliminating or reducing certain requirements, providing more flexibility with respect to requirements applicable to issuers and qualified persons in certain areas, providing more flexibility to accept new foreign professional associations, professional designations, and reporting codes as they arise or evolve, reflecting changes that have occurred in the mining industry, and clarifying or correcting certain areas that did not have the intended regulatory effect.  

Comments on the proposals are being accepted until July 23, 2010.

Preparing for Canada's new insider reporting requirements in force April 30, 2010

Simon Romano and Ramandeep Grewal

While a narrower group of “insiders” will be required to report, the rules also include specific reporting obligations in respect of management companies, income trust issuers and those holding convertible securities.

Effective April 30, 2010, the Canadian Securities Administrators (CSA) will be implementing a new regime for insider reporting under National Instrument 55-104 Insider Reporting Requirements and Exemptions (NI 55-104 or the Instrument). NI 55-104 will principally harmonize all requirements relating to insider reporting and most insider reporting exemptions across all provinces and territories.  Generally, NI 55-104 will reduce the scope of persons required to file insider reports and expand the nature of interests that must be reported. As discussed in detail below, some of the key features of NI 55-104 include:

Continue Reading...

CSA publish amendments to investment fund prospectus disclosure forms

On April 9, the Canadian Securities Administrators (CSA) announced amendments to Form 81-101F2 Contents of Annual Information Form and Form 41-101F2 Information Required in an Investment Fund Prospectus. The amendments were originally published for comment on October 9, 2009 and are intended to ensure consistency between the disclosure requirements for advisers under National Instrument 23-102 Use of Client Brokerage Commissions relating to client brokerage commissions and similar disclosure prescribed for investment funds. This is proposed to be achieved by changing the existing disclosure required in Form 81-101F2 and by adding a new disclosure item to Form 41-101F2  relating to brokerage arrangements involving client brokerage commissions in order to provide investors with relevant qualitative information regarding goods and services other than order execution obtained in connection with client brokerage commissions. Pending approval in Ontario by the Minister of Finance, the amendments are expected to come into force on June 30, 2010.

SEC and IOSCO release proposals regarding asset backed securities

On April 7, the U.S. Securities and Exchange Commission (SEC) announced proposals to revise the rules respecting asset-backed securities in order to "better protect investors in the securitization market." Specifically, the proposals would make changes to the offering process, disclosure and reporting for asset-backed securities (ABS). The changes are described by the SEC as being comprehensive and imposing new burdens in order to "provide investors with timely and sufficient information...reduce the likelihood of undue reliance on credit ratings, and help restore investor confidence in the representations and warranties regarding the assets." Comments on the proposals are being accepted by the SEC for 90 days after publication of the proposals in the Federal Register.

Meanwhile, the International Organization of Securities Commissions (IOSCO) released a report yesterday entitled "Disclosure Principles for Public Offerings and Listings of Asset Backed Securities". The report is intended to "provide guidance to securities regulators who are developing or reviewing their regulatory disclosure regimes for public offerings and listings of asset-backed securities (ABS)." Specifically, the report outlines the information that should be included in any offer or listing document for a publicly offered or listed ABS.

CSA publish proposed amendments to beneficial owner communication procedures

The Canadian Securities Administrators (CSA) today released proposed amendments to National Instrument 54-101 Communication with Beneficial Owners of Securities of a Reporting Issuer, its companion policy, forms and related consequential amendments. The amendments are intended to improve the beneficial owner communication procedures by, among other things, incorporating notice-and-access provisions for proxy-related materials for meetings that are not special meetings, simplifying the beneficial owner proxy appointment process and enhancing disclosure regarding the beneficial owner voting process.

In particular, the notice-and-access provisions would allow reporting issuers to post information circulars on a website (non-SEDAR) and send a notice to beneficial owners informing them that the proxy-related materials have been posted. An explanation of how to access the material and a voting instruction form would be included with the notice. The CSA also highlighted the differences between its proposals and the U.S. model for notice-and-access. Despite the differences, however, SEC issuers would be permitted to use the U.S. process to comply with CSA requirements.

The CSA are accepting comments on its proposals until August 31, 2010 and have specifically invited comments on a number of questions, primarily relating to notice-and-access.

SEC publishes staff views on no-action requests by issuers to suspend reporting obligations

The U.S. Securities and Exchange Commission published a staff legal bulletin on March 15 providing the views of its Division of Corporation Finance respecting the circumstances under which issuers may suspend their reporting obligations under section 15(d) of the Securities Exchange Act of 1934 by relying on Rule 12h-3. Citing the routine nature of no-action requests by issuers, the large body of no-action precedent and the guidance in the bulletin, the Division is of the view that, on a going-forward basis, issuers that fit within the situations identified by the bulletin and that satisfy the relevant conditions do not need a no-action response before filing the applicable form to suspend its section 15(d) reporting obligations.

IIROC expects reporting of business model changes

On March 10, 2010, the Investment Industry Regulatory Organization of Canada (IIROC) published a guidance note outlining its expectations with respect to Dealer Members reporting changes to their business models. According to IIROC, it is "essential" that it be made aware of "significant changes" to a member's business model as such reporting will enable more efficient and effective regulatory supervision. While a "significant change" depends on the circumstances of each case, the note provides some examples of changes that are expected to be reported. Further, IIROC expects the notifications to be thorough and detailed so as to allow it to "fully understand and assess" the changes to the business model.

CSA publish amendments to scholarship plan disclosure

Earlier today, the Canadian Securities Administrators (CSA) published proposed amendments to National Instrument 41-101 General Prospectus Requirements intended to provide investors with "more meaningful and effective prospectus disclosure" with respect to scholarship plans. A new disclosure form tailored to scholarship plans was also proposed, which would organize the format and content of disclosure in order to make the disclosure "more understandable, accessible and readable." The proposals are open for a 90-day comment period.

SEC approves statement on global accounting standards and IFRS convergence

The SEC issued a statement on Wednesday outlining its position with respect to global accounting standards. Specifically, the SEC stated that it supports "the objective of financial reporting in the global markets pursuant to a single set of high-quality globally accepted accounting standards." It recognizes, however, that incorporating IFRS into the U.S. financial reporting environment would be a large task and recognizes the need for deliberation as well as a sufficient transition time to prepare for such a change.

Thus, the SEC directed its staff to develop and execute a work plan to enhance the SEC's understanding and assist it in making a decision in 2011 regarding the incorporation of IFRS into the financial reporting system for U.S. issuers. Specifically, the work plan sets out the following areas of concern: (i) sufficient development and application of IFRS for the U.S. domestic reporting system; (ii) the independence of standard setting for the benefit of investors; (iii) investor understanding and education regarding IFRS; (iv) examination of the U.S. regulatory environment that would be affected by a change in accounting standards; (v) the impact on issuers; and (vi) human capital readiness.

Considering the time required to successfully implement a change in financial reporting, the SEC stated that should it make the decision in 2011 to incorporate IFRS, the earliest that U.S. companies would report under such a system would be approximately 2015 or 2016, although SEC staff have been asked to further evaluate this timeline as part of the work plan.

IOSCO publishes periodic disclosure principles

On Monday, the International Organization of Securities Commissions (IOSCO) published a final report entitled "Principles for Periodic Disclosure by Listed Entities". The report is intended to provide securities regulators with a framework for establishing or reviewing their periodic disclosure regimes. According to the report, its principles-based format "allows for a wide range of application and adaptation by securities regulators." 

Specifically, the report identifies the following principles as being "essential" for periodic disclosure regimes: (i) periodic reports should contain relevant information; (ii) for those periodic reports in which financial statements are included, the persons responsible for the financial statements provided should be clearly identified and should state that the financial information provided is fairly presented; (iii) the issuer's internal control over financial reporting should be assessed or reviewed; (iv) information should be available to the public on a timely basis; (v) periodic reports should be filed with the relevant regulator; (vi) the information should be stored to facilitate public access; (vii) disclosure criteria; (viii) equal access to disclosure; and (ix) equivalence of disclosure.

Securities class action certified: First of its kind in Ontario

Silver v. IMAX Corporation et al. [2009] O.J. Nos. 5573 and 5585 (S.C.J.)

Simon Bieber and Jennifer Imrie

On December 14, 2009, Justice van Rensburg of the Ontario Superior Court of Justice handed down two related rulings in the Silver v. IMAX Corporation litigation. The first (the “Leave Decision”) granted the plaintiffs leave to proceed with their class action against IMAX Corporation and certain individual respondents (collectively, the “IMAX Defendants”) under section 138.8 of Ontario’s Securities Act (“OSA”), while the second (the “Certification Decision”) certified the action, including both statutory and common law claims, as a class proceeding.

The Leave Decision is the first to consider the leave requirements for a statutory misrepresentation claim under the secondary market liability provisions in Part XXIII.1 of the OSA, while the Certification Decision appears to accept the “efficient market” (or “fraud on the market”) theory for common law misrepresentation claims. Justice van Rensburg permitted certification despite the defendant’s argument that the claim as pleaded is deficient for not alleging individual reliance by each member of the proposed class and accepted the plaintiffs’ argument that certification should extend to a global class of plaintiffs consisting of all persons who acquired securities of IMAX Corporation (“IMAX”) during the defined “Class Period” of February 17, 2006 to August 9, 2006 and who continued to hold some or all of those securities at the close of trading on August 9, 2006.

Continue Reading...

SEC to issue guidance on climate change disclosure

On Wednesday, the U.S. Securities and Exchange Commission (SEC) approved the issuance of interpretive guidance respecting existing SEC disclosure requirements that apply to business or legal developments relating to climate change. While the guidance has yet to be published by the SEC, a speech by SEC Commissioner Luis A. Aguilar suggests that the SEC's release will clarify the responsibility of companies to discuss (i) the direct effects of existing and pending environmental regulation, legislation and treaties on a company's business, operations, risk factors and in MD&A; (ii) the indirect effects of such regulation on a company's business; and (iii) the effect on a company's business and operations related to the "physical changes to our planet caused by climate change". Commissioner Aguilar also suggested that companies should know their emissions information in order to evaluate risks and focus on investors when considering the materiality of information.

New CSA insider reporting regime scheduled to come into force in April 2010

The Canadian Securities Administrators (CSA) today announced the adoption of National Instrument 55-104 Insider Reporting Requirements and Exemptions (NI 55-104), and the related companion policy, along with the repeal of, or amendments to, a number of related instruments and policies. Insider reporting requirements and exemptions have been harmonized under NI 55-104 across all Canadian jurisdictions, except in the case of Ontario, where equivalent requirements will remain in the Securities Act (Ontario). Despite the difference in approach, the substance of the new requirements will be the same across the CSA jurisdictions. An earlier form of NI 55-104 was published in December 2008 for comment. While some changes where made to NI 55-104 in response to comments received, according to the CSA the final form of the instrument is substantively similar to the earlier proposal.

Specifically, NI 55-104 reduces the range of insiders required to file insider reports by introducing the concept of “reporting insider.” According to the CSA, this approach will focus the insider reporting requirement on a core group of insiders with the greatest access to material undisclosed information and the greatest influence over the reporting issuer. Interestingly, under NI 55-104, the concept of “reporting insider” includes a shareholder whose 10% beneficial ownership, control or direction is calculated based on post-conversion beneficial ownership of any convertible securities that are convertible within 60 days. 

Continue Reading...

OSC publishes report regarding review of investment funds

Earlier this week, the Ontario Securities Commission (OSC) issued a report summarizing its compliance review of various types of investment funds. The review began in September 2008 in response to concerns respecting market turmoil and focused on assessing compliance by fund managers with Ontario securities laws. Funds were reviewed in three phases, beginning with money market funds, followed by non-conventional investment funds and finally focusing on hedge funds.

While the OSC noted "some instances of non-compliance" during site visits, the report states that no industry-wide compliance issues were observed. The report, however, makes a number of observations and includes suggested practices for fund managers.

OSC releases January 2010 edition of The Investment Funds Practitioner

The Ontario Securities Commission (OSC) has released the January 2010 edition of The Investment Funds Practitioner, a publication intended to assist those that regularly prepare public disclosure documents and applications for exemptive relief on behalf of investment funds. Authored by staff of the OSC's Investment Funds Branch, the Practitioner contains an overview of recent issues emerging from applications for discretionary relief, prospectuses and continuous disclosure documents. Specifically, the OSC provided a number of observations and practice points that may be of interest. Among other things, the publication considers the following: 

  • Responding to "novel applications" for relief from the various conflict provisions under Ontario's Securities Act (Act) and National Instrument 81-102 Mutual Funds (NI 81-102) based on IRC approval. The OSC reminded filers that the Canadian Securities Administrators deliberately chose to maintain the various conflict provisions in local securities legislation and codify only limited exemptions in National Instrument 81-107 Independent Review Committee for Investment Funds.  The OSC stated that it intends to complete reviews to assess how the IRC approval system is working with existing codified exemptions.
     
  • The OSC noted a number of "recurring issues" respecting the mergers and reorganizations of mutual funds, including applications missing required information and filers failing to properly factor in securities regulatory approval into the transaction planning process.
     
  • The OSC also noted that it generally does not require a parallel application for relief from the conflicts of interest prohibitions under the Act where relief is sought under NI 81-102 to facilitate fund on fund arrangements that do not comply with all the conditions in section 2.5(2) of NI 81-102. The OSC indicated that it is of the view that the exemption codified under section 2.5(7) of NI 81-102 still applies even where the fund has obtained an exemption from some of the conditions in section 2.5(2).   
     
  • Filers were also reminded by the OSC that those wishing to receive a receipt for a (preliminary) prospectus that the (preliminary) prospectus and accompanying material should be received by the OSC on or before noon on the day the receipt is required.
     
  • The OSC noted that while it has granted relief to file a prospectus beyond the 90 day period, it encourages filers to make applications for this type of relief prior to the expiration of the 90 day period.  

BCSC adopts urgent rule regarding self-dealing

The British Columbia Securities Commission (BCSC) recently issued a Notice of Adoption regarding its adoption as an urgent rule of BC Instrument 81-513 Self Dealing and related consequential amendments. BCI 81-513 and related consequential amendments are in response to the repeal of the sections of the British Columbia Securities Act that had, until September 28, 2009, contained similar requirements.  Given that BCI 81-513 and related consequential amendments were adopted as an urgent rule, they can remain effective only for a maximum of 275 days. To remain effective, the BCSC must publish BCI 81-513 and related consequential amendments for comment and, as such, the Notice of Adoption is also a request for comment. The BCSC is accepting comments on the instrument and consequential amendments until February 21, 2010.

CCGG releases executive compensation best practices

Last month, the Canadian Coalition for Good Governance (CCGG) released the 2009 edition of its "Best Practices in Disclosure of Executive Compensation Related Information". The guide is intended to "improve the overall quality of executive compensation disclosure in annual proxy circulars" by reviewing best practices and providing examples of disclosure meeting the criteria set out in its guidelines. According to the CCGG, truly effective disclosure is easy to find, easy to understand, accurate and complete and given in context so that the information has meaning. Specifically, the CCGG considered executive compensation disclosure in five areas, discussed below.

1. Build an independent compensation committee

While the CCGG observed that many issuers have appointed a compensation committee of solely independent directors comprising of members with diverse backgrounds, opportunities for improvement were identified. Specifically, the CCGG suggests identifying the compensation expertise of the committee members and establishing and disclosing the committee's work plan.

2. Develop an independent point of view

On this point, the CCGG states that most issuers have retained the services of a compensation consultant, with some companies reporting the fees paid. Despite a CSA requirement to name the consultant, however, the CCGG notes that not all issuers did so and recommends disclosing the fees paid to the consultant for work performed on behalf of the compensation committee and management, as well as a breakdown of such fees.

Continue Reading...

CSA propose amendments to oil and gas disclosure requirements

On December 18, the Canadian Securities Administrators (CSA) published for comment proposed amendments to NI 51-101 Standards of Disclosure for Oil and Gas Activities, its companion policy and related forms. Among other things, the amendments would: (i) clarify the signing requirements of Form 51-101F3; (ii) amend the optional supplemental disclosure of reserves data in annual disclosure to provide for disclosure that is comparable to U.S. disclosure; (iii) add a requirement to discuss in annual disclosure the significant factors and uncertainties associated with properties for which no reserves have been developed; (iv) replace the requirement to announce the annual filings with a press release with the requirement to file on SEDAR a Form 51-101F4; and (v) limit the scope of NI 51-101 to evaluation and disclosure practices related to reserves and resources other than reserves. Comments on the proposed amendments are being accepted until March 19, 2010.

OSC publishes notice regarding disclosure of corporate governance and environmental matters

The Ontario Securities Commission (OSC) today released a notice regarding the disclosure of corporate governance and environmental matters by reporting issuers other than investment funds. Specifically, the OSC stated that it will conduct a review of issuers' compliance with NI 58-101 Disclosure of Corporate Governance Practices during 2010 in order to assess the adequacy of corporate governance disclosure in information circulars (and AIF and MD&A where applicable) filed in the spring of 2010.

With respect to environmental disclosure guidance, the OSC intends to issue guidance by December 2010 on compliance with environmental disclosure requirements under NI 51-102 Continuous Disclosure Obligations. For more information on issues surrounding environmental disclosure obligations, see Jeffrey Elliott's post of January 2009.

U.S. Senator introduces Energy Security Through Transparency Act of 2009

Charles R. Kraus

On September 23, 2009, United States Senator Richard Lugar introduced a Bill entitled the Energy Security Through Transparency Act of 2009 (ESTA), which was read twice and referred to the Committee on Banking, Housing, and Urban Affairs for further consideration.

The progress of ESTA is of interest to Canadian oil and gas issuers with annual reporting obligations under the U.S. Securities Exchange Act of 1934. Among other things, ESTA proposes to require the U.S. Securities and Exchange Commission to issue rules requiring "resource extraction issuers" (defined as an issuer that engages in the commercial development of oil, natural gas, or minerals) to include in their annual reports information relating to any payments made by the issuer, a subsidiary or partner of the issuer, or an entity under the control of the issuer to a foreign government for the purpose of the commercial development of oil, natural gas, or minerals.

ESTA provides that the required disclosure shall include the type and total of all such payments (i) for all projects, and (ii) to each foreign government, and the term "payment" is defined to include taxes, royalties, fees, licenses, production entitlements, bonuses and other material benefits.

TSX amends Form 11 - Notice of Private Placement

Effective November 27, 2009, the Toronto Stock Exchange has adopted amendments to Form 11 - Notice of Private Placement pursuant to which additional details are required concerning broker warrants and anti-dilution provisions as well as identification of any newly created insiders. The form also requires certification by a director or senior officer of the issuer.

Specifically, Form 11 has been amended to add a new section 3(j), which requires a description of any broker warrants (or options), including the number, exercise price, term to expiry and other significant terms. A new section 3(k) now requires a description of any anti-dilution provisions that provide an adjustment for events for which not all securities holders are compensated. With respect to insiders, the form now requires that any new insiders created as a result of the private placement be identified and specifically notes that the TSX may require the new insiders to complete and clear a Personal Information Form prior to the closing of the private placement. A director or officer of the issuer will also have to certify that the notice is complete and accurate and that it does not contain any misrepresentations.

CCGG publishes 2009 Best Practices in Disclosure of Director Related Information

 PDF Version

The Canadian Coalition for Good Governance (CCGG) recently published its 2009 edition of Best Practices in Disclosure of Director Related Information, a guide intended to "improve disclosure about directors." According to the CCGG, the purpose of the document is to "recommend disclosure practices that exceed the minimum requirements set out in the regulations." The guide also states that the most effective disclosure is easy to find and understand, accurate and complete and given in a context that gives the information meaning. Specifically, the guide deals with disclosure of director-related information in five separate sections, as outlined below.

Section A – Shareholder voting

This section discusses the methods of voting for directors preferred by the CCGG. An example of a form of proxy considered to be a "best practice" is included as well a list of issuers who have adopted a majority voting policy for their director elections. As the CCGG has previously stated, it recommends individual director voting using a checkbox to indicate voting preference (vote “for” or “withhold”) along with adoption of a majority voting policy. The CCGG also recommends that a report of voting results should be posted on SEDAR within 10 business days of an AGM and should include the results based on the number of proxy votes cast for or withhold from the election of directors and auditors, along with those cast for or against any company or shareholder sponsored resolutions.  There is also a discussion on the results from the CCGG’s annual study on voting methods. Among other results highlighted from the study, the guide notes that 74% of companies in the S&P/TSX Composite Index now allow their shareholders to vote with respect to individual directors (contrasted with the 26% that still employ slate voting).  

Section B – Director information

Section B provides guidance for companies that want to adopt “exemplary” disclosure practices and provides examples of how certain issuers have chosen to communicate information on matters such as director selection and orientation, background, share ownership, compensation and performance assessment. The CCGG encourages issuers to either adopt or adapt these disclosure practices. 

Continue Reading...

CSA release notice regarding review of executive compensation disclosure

The Canadian Securities Administrators (CSA) today published a staff notice regarding its review of executive compensation disclosure subsequent to the adoption of the revised Form 51-102F6. The revised Form applies to financial years ending on or after December 31, 2008 and the notice follows a series of targeted reviews to assess compliance with the required disclosure obligations undertaken by staff of the BCSC, ASC, OSC and AMF.

While 62 of the 70 companies reviewed were considered to have generally met the requirements of Form 51-102F6, a number of disclosure issues were identified. While the notice does not purport to set out an exhaustive list of all the issues identified, it provides a summary of those issues, which in the CSA’s view are more significant, including: (i) failing to properly disclose performance goals and how they are tied to the executive’s compensation; (ii) failing to disclose benchmarks and if disclosed, failing to properly explain the benchmark’s components; (iii)  a lack of explanation of how the trend in the performance graph compared to the trend in the issuer’s executive compensation over the prescribed period; (iv) improper disclosure under the summary compensation table; (v) failing to appropriately quantify the lifetime benefit under the pension plan benefit table; and (vi) failing to quantify termination and change in control benefits. Various other issues are also identified.

Further, the notice states that the CSA will continue to review executive compensation disclosure as part of their continuous review programs. In particular, the CSA state that they will focus in particular on disclosure relating to Compensation Discussion and Analysis, Summary Compensation Tables and termination and change in control benefits.

CSA publish guidance on compliance with forward-looking information requirements

On November 20, 2009, the Canadian Securities Administrators (CSA) published CSA Staff Notice 51-330 Guidance Regarding the Application of Forward-Looking Information Requirements under NI 51-102 (the Staff Notice). The purpose of the Staff Notice is to outline results of the CSA’s continuous disclosure reviews conducted on compliance with the forward-looking information (FLI) requirements in National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102). These FLI requirements under NI 51-102 came into effect on December 31, 2007, replacing the previous requirements under NP 48. A wide range of documents were reviewed for the purposes of the continuous disclosure review (including AIFs and MD&A), and while a number of improvements were requested by staff in future filings, the reviews did not result in any issuers having to re-file any documents in order to correct identified deficiencies.

Continue Reading...

AMF releases results of continuous disclosure review

Yesterday, Quebec's Autorité des marchés financiers (AMF) released its Continuous Disclosure Review Program Activity Report for the fiscal year ending March 31, 2009. The report presents the findings of the AMF's review of the continuous disclosure documents of Quebec-based companies and investment funds. The AMF stated in its release that it focused its reviews on financial services companies and those with high indebtedness given the credit and liquidity challenges experienced over the last year.

While the report found a high quality of disclosure records overall, the AMF noted that deficiencies were found in the application of accounting requirements, specifically with respect to financial instrument disclosure. Thus, the AMF encouraged issuers "to rigorously apply all GAAP and to pay special attention to new accounting requirements." The AMF also noted that for the 2009-2010 fiscal year, it will be particularly focused on disclosure relating to the upcoming changeover to IFRS and the recent amendments to the CICA Handbook regarding fair market measurements.

IASB and FASB reaffirm commitment to improve IFRS

On November 5, the International Accounting Standards Board (IASB) and the U.S.Financial Accounting Standards Board (FASB) released a statement reaffirming their commitment to improving IFRS and U.S. GAAP and to bring about their convergence. The joint statement also described the boards' plans and milestone targets for individual projects.

SEC releases staff accounting bulletin regarding oil and gas reporting

Charles Kraus

On October 30, the U.S. Securities and Exchange Commission (SEC) announced the release of a staff accounting bulletin to update guidance "on how the agency's staff interprets accounting rules related to the oil and gas industry." The guidance is intended to correspond with rulemaking that the SEC approved in December 2008 to modernize its oil and gas company reporting requirements. The principal revisions of the guidance include:

  • changing the price used in determining quantities of oil and gas reserves to use an average price based upon the prior 12-month period rather than year-end prices;
     
  • eliminating the option to use post-quarter-end prices to evaluate write-offs of excess capitalized costs under the full cost method of accounting; 
     
  • removing the exclusion of unconventional methods used in extracting oil and gas from oil sands or shale as an oil and gas producing activity; and
     
  • removing certain questions and interpretative guidance which are no longer necessary.

The guidance updates Topic 12 of the codification of staff accounting bulletins in order to make it consistent with the Commission’s Final Rule Release, Modernization of Oil and Gas Reporting, issued December 31, 2008. 

CSA publish proposed amendments to prospectus and registration exemption instrument arising from upcoming changeover to IFRS

The Canadian Securities Administrators today also published a notice regarding proposed amendments to National Instrument 45-106 Prospectus and Registration Exemptions, its companion policy and forms. The proposed amendments are intended to replace Canadian GAAP terms with IFRS terms, change disclosure requirements where IFRS contemplates different financial statements than existing Canadian GAAP, provide a 30-day extension for reporting issuers to include in an offering memorandum the first interim financial report in the year of adopting IFRS in respect of an interim period beginning on or after January 1, 2011 and clarify, amend or delete provisions that are no longer appropriate.

The Autorité des marchés financiers and the New Brunswick Securities Commission in Quebec and New Brunswick, respectively, are publishing staff notices for comment that set out the substantive proposed changes reflected in the proposals published by the other CSA jurisdictions. However, due to the requirement to publish proposed amending instruments in French and English, and because French IFRS terminology has not been settled, these regulators are not yet able to publish the proposed amendments for comment. Further amending instruments dealing with French IFRS terminology are expected to be published in early 2010.

Comments on the proposals are being accepted by the CSA until January 18, 2010.

CSA publish proposed changes to investment fund continuous disclosure instrument arising from upcoming changeover to IFRS

The Canadian Securities Administrators published a notice today regarding proposed amendments to National Instrument 81-106 Investment Fund Continuous Disclosure, its companion policy and certain other rules and forms that address the upcoming changeover from Canadian GAAP to International Financial Reporting Standards (IFRS).  This notice forms part of a series of notices that address various changes required to be made to securities rules to accommodate the transition to IFRS. The proposals are intended to accommodate the transition to IFRS by requiring that investment funds prepare financial statements in accordance with Canadian GAAP for publicly accountable enterprises and report compliance with IFRS  for financial years beginning on or after January 1, 2011 (for financial years beginning on or after January 1, 2011, Canadian GAAP for publicly accountable enterprises will be IFRS incorporated into the CICA Handbook). Terminology found within NI 81-106 will also be updated to accommodate the transition. The proposed amendments are not intended to substantively alter securities law requirements but are required in order to cover terminology differences between Canadian GAAP and IFRS and to reflect changes to financial statement presentation that will result. Two of the changes highlighted in the notice in this respect are the classification of securities issued by investment funds and consolidation.     

Continue Reading...

CSA publish proposed amendments to investment fund disclosure forms

As described in an earlier post, the CSA recently published the final version of National Instrument 23-102 Use of Client Brokerage Commissions (NI 23-102) and the accompanying companion policy, which relate to soft dollar arrangements. The CSA has now also released proposed amendments to Form 81-101F2 Contents of Annual Information Form and Form 41-101F2 Information Required in an Investment Fund Prospectus. The amendments to the forms are intended to ensure consistency with the disclosure requirements in NI 23-102. Comments are being accepted by the CSA until January 6, 2010.

SEC announces expiration of exemption to SOX provision

On October 2, the U.S. Securities and Exchange Commission (SEC) announced the upcoming expiration of the exemption from section 404 of the Sarbanes-Oxley Act currently enjoyed by public companies with a public float below $75 million. Section 404 of SOX requires public companies and their independent auditors to report on the effectiveness of internal controls. The extension for small public companies is scheduled to expire beginning with the annual reports of companies with fiscal years ending on or after June 15, 2010. The exemption had been set to expire for fiscal years ending on or after December 15, 2009, but was extended due to the recent publication of a study by the SEC's Office of Economic Analysis regarding whether post-2007 reforms were having the intended effect of "facilitating more cost-effective internal controls evaluations and audits." The study found a "significant reduction" in compliance costs following the 2007 reforms.

Certification of effectiveness of internal control over financial reporting is also required in Canada under NI 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings.  In contrast to the U.S., however, NI 52-109 does not require auditor attestation and permits "venture issuers" to omit certain certifications relating to internal controls over financial reporting and disclosure controls and procedures.

CSA publish proposed amendments to NI 52-107 to reflect transition to IFRS and notice of proposed consequential amendments to continuous disclosure, prospectus and certification rules

The Canadian Securities Administrators (CSA) today published for comment proposed amendments to National Instrument 52-107 Acceptable Accounting Principles and Auditing Standards  (NI 52-107) and its companion policy as well as related consequential amendments to National Instrument 14-101 Definitions. As previously discussed, International Financial Reporting Standards (IFRS) will apply to Canadian publicly accountable enterprises for financial years beginning on or after January 1, 2011. The amendments are intended to "provide an efficient transition mechanism for issuers and registrants to reflect the change to IFRS". 

The Canadian Accounting Standards Board (AcSB) has announced that it plans to incorporate IFRS into the Handbook of the Canadian Institute of Chartered Accountants (the CICA Handbook) as “Canadian GAAP for publicly accountable enterprises.” As a result, Part 1 of the CICA Handbook will contain a version of Canadian GAAP to be known as Canadian GAAP for publicly accountable enterprises that will apply for financial years beginning on or after January 1, 2011, and Part IV will contain a version known as Canadian GAAP for public enterprises that are the standards constituting Canadian GAAP before the mandatory effective date (current Canadian GAAP).

Continue Reading...

CSA staff release results of continuous disclosure reviews

Staff of the Canadian Securities Administrators (CSA Staff) released a staff notice today summarizing the results of their continuous disclosure review program for the 2009 fiscal year. During fiscal 2009, which ended March 31, CSA Staff completed 1,094 continuous disclosure reviews of reporting issuers other than investment funds, a 28% increase from the last fiscal year. CSA Staff noted that the deficiencies in continuous disclosure were generally in either the Management's Discussion and Analysis (MD&A) or financial statements and provided highlights of some of the more common deficiencies. Review outcomes were categorized and 48% of outcomes fell into the "prospective changes" category, which required the issuer to make changes in its next filing as a result of identified deficiencies. CSA Staff also identified areas of focus for the next fiscal year, including notably, disclosures of IFRS changeover plans in the MD&A.

SEC publishes proposed amendments regarding proxy disclosure and solicitation

The U.S. Securities and Exchange Commission has now published proposed amendments to its rules in order to "improve the disclosure shareholders of public companies receive regarding compensation and corporate governance, and facilitate communications relating to voting decisions." The proposals, announced earlier this month, would expand the scope of compensation disclosure and analysis to require disclosure of a company's overall compensation program as it related to risk management. Disclosure requirements regarding the qualifications of directors and nominees would also be extended and certain issues relating to the solicitation of proxies and the granting of proxy authority would be clarified. Comments on the proposals are being accepted by the SEC until September 15, 2009.

Secretary Geithner testifies regarding regulation of OTC derivatives

Secretary Geithner speaking in February
Citing the "enormous scale" and "critical role" of over-the-counter (OTC) derivatives in the financial markets, U.S. Treasury Secretary Timothy Geithner outlined the steps the Obama Administration intends to take to regulate OTC derivatives in testimony to Congress on July 10. The steps include: (i) requiring that all standardized derivative contracts be cleared through well-regulated central counterparties and executed either on regulated exchanges or regulated electronic trade execution systems; (ii) encouraging greater use of standardized OTC derivatives through capital requirements and other measures to facilitate migration of such derivatives onto central clearinghouses and exchanges; (iii) requiring all OTC derivative dealers and other major market participants to be subject to supervision and registration; (iv) making OTC derivative markets fully transparent by the imposition of recordkeeping and reporting requirements; (v) providing the Securities and Exchange Commission (SEC) and the Commodity Futures Trading Commission (CFTC) with authority to enforce the regulation of OTC derivative markets; (vi) working with the SEC and CFTC to improve standards governing who can participate in OTC derivative markets and (vii) working with international counterparts to ensure that the U.S. regulatory regime is matched by effective regimes internationally. The testimony follows on recent testimony by SEC Chairman Mary Schapiro on the same subject.

FSA announces proposals requiring financial firms to publish complaint data

The U.K. Financial Services Authority (FSA) released proposals on July 9 that would require financial firms to publish their complaints data every six months. The required information would include the number of complaints opened and closed, the percentage of claims closed within eight weeks and the percentage upheld. The FSA would also publish results from the whole sector twice a year. The FSA is accepting comments on the proposals until October 30, 2009.

CSA publish proposals respecting mutual fund disclosure at point of sale

On June 19, 2009, the Canadian Securities Administrators (the CSA) published for comment proposed amendments to National Instrument 81-101 Mutual Fund Prospectus Disclosure and its related forms.   

The proposed amendments represent the culmination of many years of review and research undertaken by securities and insurance regulators under their Joint Forum initiative to develop a better approach to providing meaningful and effective disclosure to mutual fund investors. As such, the proposed amendments announced in this notice form the first phase of this joint approach. The second phase involves a review of the overall disclosure regime for mutual funds with a view to reducing duplication.

Continue Reading...

BCSC provides advance notice of BCI 13-502 respecting electronic filing of exempt distribution reports

On June 5, 2009, the British Columbia Securities Commission published BC Notice 2009/07 Advance Notice of BCI 13-502 Electronic filing of reports of exempt distribution and Related Documents. This notice announced the expected implementation, effective July 30, 2009, of BC Instrument 13-502 and its related companion policy. BCI 13-502 requires issuers who file a report of exempt distribution and pay fees in connection with that report to do so electronically through BCSC e-services.

Topics and trends in executive compensation: wealth accumulation analysis

Effective for the 2009 proxy season, the Canadian Securities Administrators (CSA) have adopted new requirements for executive compensation disclosure (the New Disclosure Requirements). Stikeman Elliott's "Executive Compensation After the Boom" highlights current trends in executive compensation and their impact on compensation decisions. The following excerpt reviews the trend towards wealth accumulation analysis.

Wealth Accumulation Analysis

Focussing on the different tools at the disposal of the board or compensation committee in developing pay packages, another emerging trend is the move towards a broad-based and more holistic wealth accumulation analysis.

Continue Reading...

CSA provide guidance on resource disclosures, possible reserves

Keith Chatwin and Rose Anderson |  PDF Version Version française

Although the disclosure of reserves has been mandated in Canada for a considerable period of time, both pursuant to National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities (NI 51-101) since September 2003 and prior to that pursuant to National Policy 2B, those policies have not, until recently, ventured further down the commerciality spectrum to provide guidance in respect of contingent and prospective resources.

Not surprisingly, while disclosure in relation to proved and probable reserves, and to a lesser extent possible reserves, has improved, the same cannot be said of resource disclosures. Just as investors have benefited from the enhanced comparability of reserve reports by virtue of the consistency of disclosure in relation to reserves, so they have suffered from the relative lack of guidance in relation to resource disclosures and the resultant diminished comparability and consistency.

Continue Reading...

Topics and trends in executive compensation: compensation consultants

Effective for the 2009 proxy season, the Canadian Securities Administrators (CSA) have adopted new requirements for executive compensation disclosure in the form of the revised Form 51-102F6 (the New Disclosure Requirements). The following excerpt from "Executive Compensation After the Boom" reviews the use of compensation consultants.

Compensation Consultants

Benchmarking analysis and information is one of the key services provided by compensation consultants. Given their expertise and access to often proprietary information on industry practices, compensation consultants can also help to structure compensation packages. Under the SEC’s disclosure rules, the Compensation Discussion & Analysis (CD&A)  is required to include disclosure on whether a company has relied on compensation consultants in determining what to pay its executives.1 While this requirement was not included by the CSA in the new disclosure requirements, it is required disclosure under National Instrument 58-101 Disclosure of Corporate Governance Practices (NI 58-101).2 This disclosure is proposed to be expanded pursuant to recently proposed amendments to NI 58-101.3 The expanded disclosure is proposed to include a requirement to identify any compensation consultant or other adviser that is used, a summary of their mandate, when they were first retained, whether they have performed any other services for the company (and if so, a description of the nature of that work) and the aggregate fees billed by the consultant or adviser in the last two financial years for professional services relating to executive compensation and for other professional services.

Continue Reading...

Reminder of new certifications and MD&A disclosure required for 2008 year-end filings

Mike Devereux and Ramandeep K. Grewal |  PDF Version | Version française

On October 24, 2008, the Canadian Securities Administrators (the CSA) adopted a revised form of National Instrument 52-109 Certification of Disclosure of Issuers’ Annual and Interim Filings (NI 52-109 or the Instrument).[1] Effective December 15, 2008, NI 52-109 has introduced new interim and annual certification requirements and new disclosure requirements for interim and annual management discussion and analysis (MD&A).

Under the revised NI 52-109, the issuer’s chief executive officer (CEO) and chief financial officer (CFO), or other persons performing similar functions (referred to as certifying officers), are required to personally certify as to certain matters. The revised NI 52-109 expands significantly upon the items that were previously included in interim and annual certificates. These expanded certifications may also have a significant impact on related MD&A depending on the state of an issuer’s design and effectiveness of disclosure controls and procedures (disclosure controls) and internal control over financial reporting (internal control). 

Continue Reading...

Determining the appropriate elements of executive compensation: benchmarking

Effective for the 2009 proxy season, the Canadian Securities Administrators (CSA) have adopted new requirements for executive compensation disclosure in the form of the revised Form 51-102F6 (the New Disclosure Requirements). The following excerpt from "Executive Compensation After the Boom" will review the new disclosure requirements as they affect the principle of benchmarking.

Benchmarking

Developing an appropriate compensation package does not stop at pay-for-performance considerations. Once a company has determined the types of performance that it seeks to reward, there remains the challenge of measuring performance to determine if and when rewardable goals have been attained, and when attained, how they should be rewarded. For the purpose of setting performance targets, companies can look to comparable internal or external peer groups (i.e. other similarly situated companies) or forecasted budgets. Analysis based on peer group evaluation, or benchmarking as it is referred to in some circumstances, can be useful to the development of compensation packages in a number of different ways. In relation to performance targets, peer group analysis can be used to determine the appropriate target levels to award. While companies may primarily rely on internal budgets for these numbers, setting targets relative to peer group performance can be useful in circumstances of economic uncertainty and instability, where external market forces might have an unexpected impact on industry performance in general. 

Continue Reading...

CSA releases guidance for oil and gas disclosure of resources other than reserves

The CSA published a notice today to provide guidance with respect to the disclosure of oil and gas resources other than reserves data. In the notice, the CSA noted that while disclosure of resources not included in reserves data is not required under National Instrument 51-101 Standards of Disclosure for Oil and Gas Activities, such disclosure "must be consistent with all applicable securities laws." The notice was published in response to "recurring issues" found in the CSA's review of such disclosure.

New disclosure requirements for executive compensation: pay for performance

Effective for the 2009 proxy season, the Canadian Securities Administrators (CSA) have adopted new requirements for executive compensation disclosure in the form of the revised Form 51-102F6 (the New Disclosure Requirements). The following excerpt from "Executive Compensation After the Boom: A Guide for Canadian Public Companies in 2009" will review the new disclosure requirements as they affect the principle of pay-for-performance.

Pay-for-Performance

The New Disclosure Requirements call for a new narrative form of discussion and analysis of executive compensation (called Compensation Discussion & Analysis, or CD&A). CD&A is required to contain a discussion of, among other things, the objectives of the compensation program, what the compensation is designed to reward, the elements that comprise the compensation package and why the company chooses to pay what it pays, as well as a discussion of how each element of compensation and the company’s decision about such element fits into its overall compensation objectives.1

Continue Reading...

IIROC to accept surveys in lieu of IFRS progress reports

On September 30, 2008, the Investment Industry Regulatory Organization of Canada (IIROC) issued Notice 2008-0113 regarding the adoption of International Financial Reporting Standards (IFRS). Notice 2008-0113 stated that IIROC would require progress reports on the adoption of IFRS from dealer members by April 1, 2009.

On February 23, 2009, however, IIROC released a notice stating that in lieu of a progress report, dealer members will be required to complete a survey, which will be sent to the CFOs of each dealer member. The purpose of the survey will be to "assist dealer members in their self-assessment of the impact to adopt IFRS" and IIROC intends to use the results to "identify implementation issues and next steps".

Executive Compensation After the Boom: A Guide for Canadian Public Companies in 2009

Canadian public companies and their boards have a number of significant issues to consider and address as we enter a new year, including increased investor and regulatory scrutiny.  The market turmoil and economic slowdown that gripped the economy in 2008 also continues to run its course.  In the face of these and other significant challenges, it is time again for public companies to address issues associated with the annual proxy season.  Executive compensation is again in the spotlight, partly on account of the significant disclosure reforms adopted by the Canadian Securities Administrators effective for the 2009 proxy season, and partly on account of increased public awareness of compensation issues such as executive clawbacks, pay-for-performance and golden parachute or change of control payments fuelled in part by the failure of financial firms south of the border.

As such, Stikeman Elliott has prepared this guide to help navigate through these issues.  Part 1 of the guide includes a discussion of the various elements available in designing compensation packages for Canadian executives as well as market developments and other issues relating to these elements. Part 2 highlights current trends in executive compensation and their impact on compensation decisions.

Request a pdf copy
Request a print copy

SEC publishes final rule on interactive data for financial statments

The U.S. Securities and Exchange Commission (SEC) recently published a final rule requiring companies to incorporate interactive data, using eXtensible Business Reporting Language (XBRL), into financial statements. Issuers will have to "tag" data using a standard taxonomy and provide the interactive data as an exhibit to periodic and current reports and registration statements as well as transition reports for a change in fiscal year. Further, financial statements in interactive data format will have to be posted on a filer's corporate website. The requirements are intended to improve the usefulness of financial information to investors.  "Through interactive data, what is currently static, text-based information can be dynamically searched and analyzed, facilitating the comparison of financial and business performance across companies, reporting periods, and industries."

Continue Reading...

Top five things Canadian issuers need to know about the SEC's new oil and gas reporting requirements

David TaniguchiCharles Kraus and Kristi Kasper |  PDF Version | Version française

As one of its last acts of 2008, the U.S. Securities and Exchange Commission (the SEC) issued its final rule adopting revisions to the oil and gas reporting disclosure requirements applicable to all U.S. domestic and most foreign issuers (the Final Rule)1. The rule revisions will become effective on January 1, 2010, and issuers will be required to begin complying with them in registration statements filed on or after that date, and in annual reports on Form 10-K and Form 20-F for fiscal years ending on or after December 31, 2009. Citing the potential for incomparable disclosures, the SEC will not permit issuers to follow the new rules prior to their effective date.

Continue Reading...

Environmental issues lead OSC and accounting profession to focus on climate change disclosure by reporting issuers

Jeffrey Elliott |  PDF Version Version française

In the last few years, climate change considerations have begun to figure more prominently in the investment decisions of Canadians. This, along with the complexities of complying with the existing regulations (with the prospect of more to come) designed to reduce greenhouse gas (GHG) emissions, has led the Ontario Securities Commission (OSC) and the accounting profession to focus on the disclosure of climate change issues by Canadian reporting issuers to ensure that investors are fully informed. Two recent initiatives highlight this trend.

Continue Reading...

CSA publish Staff Notice regarding continuous disclosure considerations related to current economic conditions

Citing the challenges facing issuers in preparing financial statements in light of current economic conditions, the CSA have published Staff Notice 51-328 Continuous Disclosure Considerations Related to Current Economic Conditions. The Staff Notice notes the importance to investors of continuous disclosure and addresses the topics the CSA are focusing on in their review of continous disclosure filings.

Two Ontario decisions consider scope of pre-certification evidence in secondary market securities class actions

Silver v. IMAX Corporation, [2008] O.J. No. 2751 (S.C.J.) and Ainslie v. CV Technologies Inc., [2008] O.J. No. 4891 (S.C.J.)

Alan D'Silva and Simon Bieber |  PDF Version | Version française

The interpretation of several key provisions under Part XXIII.1 of the Ontario Securities Act (OSA) was recently considered by the Ontario Superior Court of Justice in the context of proposed secondary market securities class actions in Silver v. IMAX Corporation (IMAX) and Ainslie v. CV Technologies Inc. (CV Technologies).

Continue Reading...

CSA publish notice regarding proposed new insider reporting requirements

On December 18, 2008, the CSA published for comment proposed National Instrument 55-104 Insider Reporting Requirements and Exemptions, its Companion Policy and related consequential amendments. The Proposed Instrument sets out the main insider reporting requirements and exemptions for insiders across Canada, with the exception of Ontario, where the Securities Act will govern the main insider reporting requirements. Despite this exception, the substance of the requirements and the reporting deadlines for insider reporting will be the same across the CSA jurisdictions.

The CSA's intention is to streamline and harmonize insider reporting by consolidating requirements in a single instrument. NI 55-104 also proposes specific changes to the insider reporting regime, specifically, it would:

  • reduce the number of persons required to file insider reports;
  • accelerate the insider report filing deadline from 10 calendar days to five;
  • make reporting requirements for stock-based compensation arrangements simpler and more consistent;
  • allow issuers to file an "issuer grant report" in order to facilitate reporting of stock-based compensation arrangements; and
  • require late filings by insiders to be disclosed in an issuer's information circular.

The CSA will accept comments on the proposals until March 19, 2009.

CSA publish Staff Notice regarding certification compliance review

Subsequent to a review of compliance with MI 52-109 Certification of Disclosure in Issuers' Annual Interim Filings (now replaced by NI 52-109) , the CSA have published CSA Staff Notice 52-315. The Staff Notice outlines the review's results and "provides guidance to issuers and certifying officers in complying with the certification requirements." The review focused on two aspects of compliance: (i) whether the correct form of certificate was filed; and (ii) whether an issuer's annual MD&A contained disclosure regarding the certifying officers' conclusions with respect to the effectiveness of disclosure controls and procedures.

While the CSA found that most issuers filed the correct form of certificate, 28% of issuers sampled failed to include disclosure in annual MD&A regarding the effectiveness of disclosure controls and procedures. Compliance with this requirement was found to be higher with TSX Issuers (80% compliance) than with Venture Issuers (38% compliance) or CNQ Issuers (40% compliance).

The CSA noted that "a significant percentage" of issuers did not comply with certification requirements and stated that it will actively follow up on identified deficiencies.

BC proposes electronic filing of reports of exempt distribution

On December 10, the British Columbia Securities Commission published proposed BC Instrument 13-502 Electronic filing of reports of exempt distribution. The BCSC receives about 7,000 exempt distribution reports each year, over 5,000 of which are in paper format, and the proposed Instrument would require that issuers file the reports and pay related fees electronically. The BCSC hopes that electronic filing will improve compliance and enforcement capabilities and allow for a reduction of the time it takes to post the reports on its website.

CSA Notice 81-318 - Request for Comment - Framework 81-406 Point of sale disclosure for mutual funds and segregated funds

The CSA and the Canadian Council of Insurance Regulators, comprising the Joint Forum of Financial Market Regulators, have released their proposed Framework 81-406 Point of sale disclosure for mutual funds and segregated funds. This framework set out concepts and principles reflecting the Joint Forum’s vision for more meaningful and effective disclosure.

Prior to publishing proposed changes to existing securities laws required to implement this framework, the CSA is seeking feedback on the proposal. Comments may be submitted by December 23, 2008.

Notice of Ministerial Approval of NI 52-109 and Consequential Amendment to NI 51-102

The OSC has published notice of Ministerial Approval of the revised National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (previously published in the OSC Bulletin on August 15, 2008, click here for our previous post) and has confirmed that new rule, and related forms and companion policy, will come into force on December 15, 2008. 

As a consequence of the implementation of the revised National Instrument 52-109, CEO and CFO certifications filed under the revised rule will be required to include, among other things, a certification that the CEO and CFO have evaluated the effectiveness of the issuer's internal control over financial reporting and have caused the issuer to disclose their conclusions about such effectiveness in the issuer's MD&A. The revised rule also contains new forms of certifications for venture issuers and for issuers completing an IPO or reverse-takeover.

As a consequence of these amendments, the MD&A form (Form 51-102F1) will also be amended, effective December 15, 2008, to include specific reference to the disclosure required to be included in the MD&A under the revised certification rule. 

Proposed new executive compensation disclosure requirements: What you need to know to prepare for upcoming proxy disclosure

Simon Romano, Ramandeep Grewal and Daniella Laise |  PDF Version

On September 18, 2008, the CSA published their final rule regarding the repeal and substitution of the current executive compensation disclosure form, also known as Form 51-102F6 (the Current Form). Under this rule, a revised Form 51-102F6 (the New Form) will be implemented, significantly changing current requirements with respect to disclosure of executive compensation and related matters.

The CSA published their initial proposals for the overhaul of executive compensation disclosure on March 29, 2007 (the 2007 Proposal) and the Current Form is a result of the subsequent comment and review process. The 2007 Proposal was based to a significant extent on changes adopted by the U.S. Securities and Exchange Commission (the SEC) in August 2006. Following receipt of substantial comments on the 2007 Proposal, the CSA republished a revised proposal on February 22, 2008, which was further revised and published as a final rule on September 18, 2008. The New Form introduces significant changes to the executive and director compensation disclosure requirements from those set out in the Current Form. As currently stated by the CSA, they expect this disclosure to apply in respect of financial years ending on or after December 31, 2008.

Continue Reading...

OSC adopts Policy 51-604 Defence for Misrepresentations in FLI

The OSC has adopted OSC Policy 51-604 Defence for Misrepresentations in Forward-Looking Information.  The purpose of this Policy is to outline the OSC’s views on some of the policy considerations underlying the defence for misrepresentations in forward-looking information contained in an issuer’s disclosure. The Policy explains how the OSC approaches the interpretation of certain aspects of the defence, including: (i) the “proximate” requirement; (ii) the required content of applicable risk factor and assumption disclosure; (iii) the “reasonable basis” requirement; and (iv)  the operation of the defence with respect to oral statements containing forward-looking information.

For a more detailed analysis of the original proposal on which the Policy is based, see our update of June 2006.

IIROC publishes notice on IFRS

On September 30, IIROC published a notice setting out its position and providing guidance to its Dealer Members regarding the adoption of IFRS. As they are considered to be "publicly accountable enterprises", Dealer Members will also be subject to  the Canadian Accounting Standards Board's decision to move from Canadian GAAP to IFRS as of January 1, 2011.  This notice sets out IIROC's views on some of the transition issues raised by the move to IFRS for Dealer Members, including  IIROC's decision not to permit early adoption prior to January 1, 2011.  The notice also reminds Dealer Members that they are required to conduct their own firm-specific impact assessments and conversion planning (which may require the input of outside expertise), and that they will be required to submit progress reports on their conversion plans, with the first report to be due by April 1, 2009.  While the conversion date is January 1, 2011, as set out in the notice, Dealer Members will need to start planning for and implementing necessary changes well prior to 2011, including running parallel IFRS-based accounting records for up to a year prior to conversion.  Some of the critical and regulatory reporting dates are also set out in the notice.

SEC publishes rule regarding changes to foreign issuer reporting

On September 23, 2008, the SEC issued amendments to its rules relating to foreign private issuers, which are intended to enhance information available to investors. Of note, the amendments will allow reporting foreign issuers to assess their eligibility to use the rules and special forms available to foreign private issuers once a year rather than continuously. The reporting deadline for annual reports by foreign private issuers, however, will be accelerated and disclosure requirements will be changed.

CSA adopting Form 51-102F6 - Statement of Executive Compensation

On September 18, the CSA announced that it was adopting Form 51-102F6 Statement of Executive Compensation (in respect of financial years ending on or after December 31, 2008) as well as consequential amendments to NI 51-102 Continuous Disclosure Obligations and other forms in order to improve the quality of executive compensation disclosure. The new form and amendments are the result of a process begun in 2007.

Whereas under the old form, "investors are provided with fragmented compensation information", the new form requires the disclosure of all compensation awarded to certain executives and directors in a more comprehensive way. Provided all ministerial approvals are obtained, the changes will come into force on December 31, 2008.

Adoption of Amendments to NI 81-106 Investment Fund Continuous Disclosure

On August 12, 2008, the Minister of Finance approved amendments, to come into force today, regarding investment fund continuous disclosure and the contents of Annual Information Forms. The proposed amendments were originally published on June 20, 2008, and described in our earlier post.

Among other things, these amendments:

  • modify the requirements regarding the calculation of net asset value following the introduction of Section 3855 Financial Instruments - Recognition and Measurement of the CICA Handbook; and
  • clarify/correct certain provisions of NationaI Instrument 81-106 Investment Fund Continuous Disclosure.

CSA adopt NP 12-203 Cease Trade Orders for Continuous Disclosure Defaults

The CSA have adopted National Policy 12-203 Cease Trade Orders for Continuous Disclosure Defaults (“NP 12-203”).

NP 12-203 provides guidance as to how the CSA will respond to certain types of continuous disclosure defaults and:

  • modernizes, harmonizes and streamlines existing practices relating to cease trade orders (CTOs) including general CTOs and management cease trade orders (MCTOs);
  • provides guidance for issuers as to the circumstances in which the CSA regulators will issue a general CTO or an MCTO;
  • explains factors the CSA regulators will consider when evaluating an application for an MCTO; and
  • describes what other actions issuers need to undertake if the CSA regulators issue an MCTO.

SEC to modernize foreign company disclosure requirements

On Wednesday, the U.S. SEC voted to modernize and update disclosure requirements for foreign companies offering securities in U.S. markets. The amendments seek to improve access to such information by providing American investors with instant electronic access to foreign company disclosure on the internet and in English. The full text of the rules will be published by the SEC shortly.

SEC announces successor to EDGAR database

The SEC announced a successor to its EDGAR database today, which it states will provide faster and easier access to financial information. The new Interactive Data Electronic Applications (IDEA) will first supplement, but eventually replace EDGAR. IDEA will collate information from individual forms and allow investors to create reports and analysis, as opposed to the current system, which only allows investors to review one form at a time.

CSA publish notice of revised NI 52-109 regarding certifications

The CSA today published notice of National Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (NI 52-109). The purpose of this notice is to confirm the repeal and replacement of MI 52-109 (the Certification Rules) and all related forms, as well as consequential amendments to Form 51-102 F1 Management’s Discussion & Analysis (the MD&A Form). NI 52-109 seeks to improve the quality and reliability of disclosure by requiring a CEO, CFO, or someone performing similar functions to personally certify certain prescribed representations.

Pursuant to these proposed amendments to the Certification Rules, in addition to the certifications that an issuer’s CEO and CFO are required to make today, they will also have to certify that they have evaluated the effectiveness of the issuer's internal control over financial reporting and have caused the issuer to disclose their conclusions about such effectiveness in the issuer's MD&A. (Today, the certificates include representations about the design of disclosure controls and procedures and internal control over financial reporting, and only as to the effectiveness of disclosure controls and procedures).

Under the amended Certification Rules, venture issuers will not be required to include any representations in their certificates regarding disclosure controls and procedures or internal control over financial reporting (currently, venture issuer’s have been given an exemption from including these representations by way of a blanket order or equivalent issued by securities regulators).

These amendments are scheduled to come into effect on December 15, 2008.

CSA release notice on Continuous Disclosure Review Program Activities for 2008

The CSA have released CSA Staff Notice 51-326 Continuous Disclosure Review Program Activities for Fiscal 2008, which summarizes the results of its continuous disclosure review program of reporting issuers, excluding investment funds, for the fiscal year ending March 31, 2008. The review identifies common deficiencies in disclosure documentation and provides a statistical summary of outcomes.

U.S. SEC provides guidance on use of corporate websites for investor disclosure

On July 30, 2008, the U.S. Securities and Exchange Commission (SEC) announced new guidance for public companies with respect to investor disclosure on corporate websites. Citing the development of the internet and the emergence of social networking since the last time it issued such direction, the SEC guidance clarifies how companies can develop their websites while complying with securities regulations. 

CSA Staff Notice 52-322 - Status of Proposed Repeal and Replacement of Multilateral Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings

The purpose of this staff notice is to provide the following update on the status of the proposed repeal and replacement of Multilateral Instrument 52-109 Certification of Disclosure in Issuers' Annual and Interim Filings (the “Certification Rule”):

  • based on comments received in response to the proposed repeal and replacement the CSA do not anticipate making any material amendments to the materials as proposed; and
  • the restated Certification Rule is expected to come into force, as earlier indicated, on December 15, 2008.

The CSA have only issued this status notice at this time, indicating that the final restatement of the proposed Certification Rule is to follow.   If the Certification Rule is revised as was proposed in April 2008, issuers will be required to add, among other things, certifications regarding the following matters to their existing certificates: (i) the design of internal control over financial reporting (ICFR) to a reasonable assurance standard, (ii) the control framework used to design the ICFR and (iii) any material weaknesses relating to design.  

CSA Staff Notice 52-321 - Early adoption of IFRS

CSA Staff Notice 52-321 is an update to CSA Concept Paper 52-402 published in February 2008 and sets out conclusions that the CSA staff have reached on the following issues (which represent some but not all issues raised in the concept paper):

  • Early adoption of IFRS: Staff are prepared to recommend exemptive relief for issuers wanting to transition to IFRS before January 1, 2011. However, if a domestic issuer has previously filed financial statements prepared in accordance with Canadian GAAP or US GAAP for interim periods in the first year that the issuer proposes to adopt IFRS the staff will recommend that the issuer file revised interim financial statements prepared in accordance with IFRS-IASB, revised interim management discussion and analysis, and new interim certificates.
  • Staff are proposing to retain the exemption in NI 52-107 for a domestic issuer that is also an SEC issuer to continue to use US GAAP.
  • Staff are proposing to retain references to IFRS-IASB (instead of referring to post 2011 principles as Canadian GAAP), however, issues relating to the availability of an appropriate French translation of IFRS and reference to both IFRS-IASB and Canadian GAAP are continuing to be considered.

Notice of Ministerial Approval of Amendments

The CSA have approved amendments to NI 51-102, 51-102F3 Material Change Report, NI 52-108 Auditor Oversight and NI 81-106 Investment Fund Continuous Disclosure. The changes are primarily of a technical nature required in order to conform these rules to the recent harmonization of securities laws among passport jurisdictions, and are effective July 4, 2008.

Additional amendments have also been made to section 9 of NI 51-102 with respect to proxy solicitation in order to exempt certain types of public solicitations from the requirement to send a proxy circular (to conform with what is currently required under the CBCA).

Notice of Amendments to NI 81-106 Investment Fund Continuous Disclosure

The CSA have approved amendments to NI 81-106, NI 81-106F1 and the related Companion Policy which will also result in changes to NI 81-102 Mutual Funds and the related Companion Policy, Form 81-101F2 Contents of Annual Information Form, and Form 41-101F2 Information Required in an Investment Fund Prospectus.

These amendments, scheduled to come into force on September 8, 2008, have been made further to a proposal and request for comments published on June 1, 2007 and are intended primarily to modify the requirements regarding the calculation of net asset value following the introduction of Section 3855 Financial Instruments -- Recognition and Measurement of the CICA Handbook; and clarify or correct certain provisions of the Instrument.

Notice of Approval - Amendments to NI 55-102 (SEDI)

The CSA have approved amendments to NI 55-102 effective June 13, 2008.

Amendments have been made to SEDAR filing procedures as well as to Form 55-102F1 Insider Profile, Form 55-102F2 Insider Report, Form 55-102F3 Issuer Profile Supplement and Form 55-102F6 Insider Report. These amendments are mostly of a house-keeping nature intended to streamline the filing and flow of information on SEDI.

CSX Corporation v. TCI and 3G Fund

CSX Corporation v. TCI and 3G Fund, June 11, 2008 | 08 CV 02764, U.S. District Court (S.D. N.Y.).

Alex Colangelo

U.S. Court deems hedge fund beneficial owners of shares due to arrangements designed to avoid disclosure obligations. The Court, however, finds itself constrained from ordering remedy sought by target company.

In a somewhat empty victory for the plaintiff railroad company, the U.S. District Court for the Southern District of New York found that the defendant hedge funds employed surreptitious means to avoid disclosure requirements while accumulating shares of CSX. Despite its findings, the District Court found itself restrained by precedent from preventing TCI and 3G Fund from exercising the votes associated with the shares they acquired during the time they were offside disclosure obligations. The plaintiff, therefore, had to settle for an injunction inhibiting the defendants from any future violations of disclosure obligations.

Continue Reading...

OSC grants relief from forward-looking information disclosure requirements for foreign offerings

Ralph A. Hipsher and Kenneth G. Ottenbreit | Version française

The Ontario Securities Commission has recently granted relief to dealers distributing foreign securities by way of private placement into Canada to address uncertainties caused by new forward-looking information disclosure requirements.

Effective December 31, 2007, the Canadian Securities Administrators (CSA) made significant amendments to forward-looking information disclosure requirements under continuous disclosure rules applicable to Canadian reporting issuers. The Ontario Securities Commission (OSC) also concurrently amended requirements relating to offering memoranda disclosure contained in OSC Rule 45-501. As a result of these amendments to OSC Rule 45-501, any offering memorandum provided to purchasers in Ontario that contains material forward-looking information (including future-oriented financial information and financial outlooks) is required to also contain certain prescribed forward-looking information disclaimers or safe-harbour type of disclosure. While this disclosure is similar to safe-harbour disclosure provided under U.S. or foreign securities law requirements, it also requires the issuer to address additional matters not typically encompassed by the equivalent non-Canadian disclosure.
 

Continue Reading...

OSC Notice published on continuous disclosure review of mutual funds

OSC Notice 81-709 summarizes findings relating to the OSC’s continuous disclosure review of conventional mutual funds. The notice primarily highlights compliance issues with NI 81-106 disclosure matters and, while focussed on conventional mutual funds, includes guidance of benefit to closed-end and exchange traded funds.

Continue Reading...

CSA releases tentative views on IFRS transition issues under Canadian rules

Simon Romano and Ramandeep Grewal | Version française

The Canadian Securities Administrators (CSA) published Concept Paper 52-402 (Concept Paper) on February 15, 2008 to discuss ramifications for securities rules as a result of the impending transition from Canadian GAAP to International Financial Reporting Standards (IFRS, as issued by the International Accounting Standards Board (IASB)). As the Canadian Accounting Standards Board (AcSB) has adopted a transition plan to move to IFRS for years beginning on or after January 1, 2011, the CSA must now consider implications of this move on securities laws and regulations. Continue Reading...

Relief for venture issuers and further update on CFO and CEO certifications

Simon Romano and Ramandeep Grewal | Version française

Venture issuers get some early relief as Canadian Securities Administrators (CSA) work towards a final proposal to incorporate certifications as to effectiveness of internal controls.

Multilateral Instrument 52-109 Certification of Disclosure of Issuer's Annual and Interim Filings (Certification Rule) finds itself again subject to a further amendment proposal. As of the first year-end following June 30, 2006, most issuers have been required to file full interim and annual certificates. These certificates have required the CFO and CEO to provide certifications with respect to:

  • annual filings (which means the AIF, annual financial statements and annual MD&A, and anything incorporated by reference into the AIF);
  • the establishment, maintenance and design of disclosure controls and procedures (DCP) and internal control over financial reporting (ICFR);
  • evaluation of effectiveness of DCP; and
  • disclosure of conclusions regarding effectiveness of DCP and any changes in ICFR in the MD&A.
Continue Reading...

New material contract filing requirements in force March 17, 2008 and impact on existing material contracts

Martin Langlois and Ramandeep Grewal | Version française

National Instrument 51-102 Continuous Disclosure Obligations (the Disclosure Instrument) is scheduled to be amended on March 17, 2008 as a consequence of the coming into force of the proposed national prospectus rule, National Instrument 41-101 General Prospectus Requirements. Amendments to the Disclosure Instrument include significant amendments to the requirements to file material contracts on SEDAR, as well as to the related Companion Policy guidance of the Canadian Securities Administrators (the CSA).

Continue Reading...

Secondary market civil liability arrives in Quebec

Robert Carelli and Alex Colangelo  | Version française

On November 9, 2007, Bill 19, An Act to amend the Securities Act and other legislative provisions (Bill 19) came into force in Quebec. Bill 19 introduces a regime of secondary market civil liability, enabling investors to sue issuers and others for failing to make timely disclosure of material changes and for misrepresentations contained in public disclosure. Bill 19 closely follows the Ontario regime and readers will notice a substantial similarity between the two. Quebec also joins other provinces, such as Alberta and British Columbia, which have enacted, or are in the process of enacting, secondary market civil liability provisions. Continue Reading...

Disclosure rules on forward-looking information get much awaited overhaul

Stewart Sutcliffe and Ramandeep Grewal

Amendments to National Instrument 51-102 Continuous Disclosure Obligations (NI 51-102) and consequential amendments to other instruments are intended to streamline regulations regarding forward-looking information (FLI) and provide clarified expectations.

Currently, National Policy 48 (NP 48) specifies how future-oriented financial information (FOFI) is to be prepared, disclosed and updated in certain types of disclosure and offering documents.  After many years of confusion with the scope and breadth of NP 48, the Canadian Securities Administrators (CSA) have decided to revoke NP 48 and replace it with new FLI and FOFI disclosure requirements. These requirements will be added to NI 51-102 and are expected to be effective as of December 31, 2007.

Continue Reading...

Canada streamlines rules relating to forward-looking information disclosure

New rules largely consistent with other jurisdictions

Brian G. Hansen and Ralph A. Hipsher

In Canada, disclosure of forward-looking information (FLI) (including disclosure of future-oriented financial information (FOFI) and financial outlooks) has been governed by the somewhat outdated and imprecise National Policy 48 (NP 48). Effective December 31, 2007, the Canadian Securities Administrators (CSA) will be revoking NP 48 and replacing it with harmonized national rules in the form of amendments to National Instrument 51-102 Continuous Disclosure (NI 51-102).

These amendments to NI 51-102 will apply to all disclosure of FLI and will primarily govern disclosure of FLI by entities that are "reporting issuers" in a Canadian jurisdiction. Notably, however, disclosure of FLI contained in prospectuses, rights offering circulars and offering memoranda issued by non-reporting issuers will also be subject to these requirements. While many non-reporting issuers may not previously have been subject to NP 48, there has long been some confusion about its application and breadth. The clear and concise requirements of the proposed amendments are therefore a welcome development, particularly as they largely reflect similar disclosure requirements in other jurisdictions.

Continue Reading...

SCC releases much-anticipated Danier Leather class action decision

Adrian C. Lang and Andrew Cunningham

The Supreme Court of Canada has upheld the Ontario Court of Appeal's ruling in this much-anticipated decision, released on October 12, 2007.  While the Supreme Court largely followed the Court of Appeal's reasoning, the Court narrowed the application of the business judgment rule, held that there is an implied statement of reasonable belief with respect to forecasts, and narrowly interpreted "material changes" in the securities context.  Surprisingly to some, the Court also awarded costs against the unsuccessful class plaintiff. 

Continue Reading...

Proposed changes to statement of executive compensation disclosure

Proposed Form 51-102F6, Statement of Executive Compensation, is touted by the CSA as improving clarity and context regarding corporate compensation practices.

Ramandeep Grewal and Alex Colangelo

On March 29, 2007, the CSA announced that they had begun to accept comments on Proposed Form 51-102F6 Statement of Executive Compensation.  The changes are intended to improve the transparency of executive compensation disclosure and to provide greater insight into this aspect of corporate governance.

The requirements for compensation disclosure have not substantially changed since the current obligations were introduced in 1994.  According to the CSA, the current disclosure requirements provide investors with fragmented information, which makes assessing total compensation difficult.  In support of increasing the requirements of disclosure, the CSA notes that many reporting issuers already provide executive compensation disclosure beyond that which is required under the current form.

In proposing Form 51-102F6, the CSA studied the new rules recently introduced by the Securities and Exchange Commission in the United States (the SEC).  The CSA’s proposed rules, however, while similar to those of the SEC, do not adopt all of the changes made in the United States, and in many cases reflect standards tailored to meet the needs of Canadian capital markets.

Continue Reading...

When to disclose merger talks

The OSC's AiT proceeding could start a trend towards earlier public disclosure.

Jeffrey Singer

Recent actions by the Ontario Securities Commission (OSC) in connection with the acquisition of AiT Advanced Information Technologies by 3M Canada may lead to tighter Canadian public M&A disclosure standards. The unexpected proceedings targeted AiT and two of its directors (its President/CEO and its legal counsel) over their alleged failure to make timely disclosure of the proposed transaction. The company and one of these directors have settled with the OSC, but the second director (the company's legal counsel) has chosen to defend her actions at a hearing.

Continue Reading...

The current status of CFO and CEO certifications in Canada

For most Canadian public issuers, certification of disclosure controls and internal control over financial reporting is now required

Multilateral Instrument MI 52-109 Certification of Disclosure of Issuers' Annual and Interim Filings (Certification Rule) got off to a bumpy start in 2003. Being subject to a number of amendments, as well as a repeal and restatement proposal, it is not difficult to understand why there is still confusion about what is required to be certified. Continue Reading...

CSA finalize amendments to continuous disclosure system

NI 51-102 amendments proposed to come into force on December 29, 2006

Simon Romano and Ramandeep K. Grewal.

On October 13, 2006, the Canadian Securities Administrators published their final notice of amendments to NI 51-102 - Continuous Disclosure Obligations (NI 51-102), its related forms and companion policy (CP 51-102), NI 51-107 - Acceptable Accounting Principles, Auditing Standards and Reporting Currency, NI 71-102 - Continuous Disclosure and Other Exemptions relating to Foreign Issuers, and consequential amendments to NI 44-101 - Short Form Prospectus Distributions and Form 44-101F1 (collectively referred to as the Amendments). This latest overhaul of the Canadian continuous disclosure regime is targeted at clarifying and streamlining various existing provisions of the respective instruments, as well as codifying discretionary exemptions that the CSA have granted in the past.

NI 51-102 sets out the obligations of reporting issuers, other than investment funds, relating to financial statements, AIFs, MD&A, business acquisitions, material change reporting, information circulars, proxies and proxy solicitation and other disclosure matters. This update focuses on some of the key changes to be introduced specifically under the Amendments to NI 51-102, its related forms and CP 51-102.

Continue Reading...

Recent CSA Staff Notices focus on non-GAAP and income trust disclosure deficiencies

Simon Romano and Ramandeep K. Grewal

CSA Staff Notice 52-306 (Revised) - Non-GAAP Financial Measures was issued in August of 2006. Its purpose is to provide greater guidance regarding the CSA's views on disclosure of non-GAAP financial measures, including forward-looking non-GAAP financial measures. Staff Notice 52-306 revises the guidance provided in an earlier notice published in November 2003 and, as a result of the broader guidance contained in it, results in the withdrawal of CSA Staff Notice 52-303 - Non-GAAP Earnings Measures.

Since publishing the original Staff Notice 52-306, the CSA have concluded that distributable cash (a measure used by many income trusts) is, in all circumstances, a cash flow measure and is fairly presented only when reconciled to GAAP cash flows from operating activities. As a result, the original Staff Notice has been re-published to communicate the CSA's expectations on how such reconciliations should be made.

Continue Reading...

OSC Provides its Interpretation of the Forward-Looking Information Defence to Secondary Market Civil Liability

Proposed OSC Policy 51-604 provides guidance on how the OSC interprets the defence to misrepresentations in forward-looking information under the newly enacted civil liability provisions of the Securities Act (Ontario).

Amendments to the Securities Act (Ontario) (the "Securities Act") that came into force December 31, 2005 (the "Bill 198 Amendments") now allow secondary market purchasers to assert a new statutory cause of action for misrepresentations contained in public documents and public oral statements. Along with these newly created causes of action, the Bill 198 Amendments also make available certain statutory defences, including a defence for misrepresentations contained in forward-looking information (the "forward-looking information defence") included in either a document or a public oral statement.

The purpose of proposed OSC Policy 51-604 Defence for Misrepresentations in Forward-Looking Information (the "Draft Policy") is to express the views of the Ontario Securities Commission (the "OSC") on the policy considerations underlying the forward-looking information defence and to explain how the OSC interprets certain aspects of this defence. It includes guidance on satisfying the requirement to present cautionary language "proximate" to the forward-looking information which it qualifies and on application of the materiality thresholds that qualify the risk factors and assumptions that are to be disclosed. While issuers may have hoped for more detailed direction on how the technical elements of the defence are to be applied, the Draft Policy does provide valuable insight into the underlying objectives of the defence and is welcome guidance for all those dealing with disclosure compliance under Ontario's new secondary market liability regime. The Draft Policy is open for comments until August 2, 2006.

Continue Reading...

New Disclosure Requirements for 2005 Annual Filings

Over the past few years, Canadian reporting issuers have been required to comply with gradually increasing disclosure requirements, changing their policies and practices along the way. As a result of securities law requirements enacted or amended in the summer of 2005, filings required to be made for the year ended December 31, 2005 are also subject to new disclosure requirements. These include: additional certifications in CEO and CFO certificates, along with corresponding disclosure in annual MD&A, as well as new disclosure relating to corporate governance practices in management information circulars and annual information forms.
Continue Reading...

CSA Releases Staff Notice 41-304 Requiring Enhanced Disclosure of Estimated Distributable Cash

On Friday, August 26, the Canadian Securities Administrators (CSA) issued Staff Notice 41-304 - Income trusts: prospectus disclosure of distributable cash. The Notice is intended to provide additional guidance on the CSA's expectations about the nature and extent of estimated distributable cash disclosure in prospectuses.

Most income trust issuers present information about estimated distributable cash (or distributable income) in their prospectuses, as this often forms the basis upon which an income trust is valued in connection with its initial public offering.  These estimates are usually based on trailing 12-month net income, adjusted for interest expenses, taxes, depreciation and amortization (EBITDA). EBITDA is usually further adjusted for certain additional items, ranging from non-recurring historical items to normalizing the effect of a recent or prospective acquisition, in order to arrive at distributable cash. The specific adjustments, as well as the level of explanatory disclosure provided in prospectuses concerning these various adjustments, generally vary from issuer to issuer.

Continue Reading...

CSA Provides Guidance on Enhanced Disclosure of Retirement Benefits

On January 14, 2005, CSA Staff Notice 51-314 - Retirement Benefits Disclosure (the Notice1 was issued to provide guidance to those issuers who choose to provide enhanced disclosure of retirement benefits payable to executives that goes beyond the strict securities law requirements specified in Form 51-102F6 Statement of Executive Compensation of National Instrument 51-102 Continuous Disclosure Obligations (the Form). The release of the Notice follows increased recent public attention to the pension portion of corporate executives' remuneration packages.

Additional disclosure considered by some issuers might include information about the value of certain retirement benefit plans, for example, supplementary executive retirement plans (SERPs). According to the Form, an issuer is required to provide general information regarding estimated annual benefits payable under defined benefit plans. An issuer must also disclose certain other information, including the relationship between the amount of compensation covered under the plan and the compensation reported elsewhere in the proxy circular, as well as the estimated credited years of service for each named executive officer.

Continue Reading...

CSA's Proposed Short-Form Prospectus Rules:Integrated Disclosure Revisited

Back in 2000, the Canadian Securities Administrators (CSA) published a concept proposal for an integrated disclosure system (IDS) to streamline the prospectus offering system. The proposal was premised in part on enhanced continuous disclosure requirements, which are now in force via NI 51-102 (and, soon, NI 81-106 for investment funds). Accordingly, the CSA are now proposing amendments to the short-form, shelf, and post-receipt pricing rules, among others, to simplify and broaden the short-form prospectus system. Comments are due by April 8, 2005, and implementation is being targeted for July 2005.

Continue Reading...